Audprob Ngina

APPLIED
AUDITING
With Comprehensive
Review of Philippine Financial
Reporting Standards (PFRSs)
PARTI
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 “Teacher's 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 publisher's 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 450,000 400,000 Balance end - A/R
Beg. Balance - N/R 350,000 340,000 Balance end - N/R
Sales on account 300,000 350,000 Collections
(squeeze)
10,000 Write-off
Total 1,100,000 1,100,000
Sales on Account 300,000

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

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

Suggested answer: A
1
PROBLEM 5-4 (Computation of Expenses in General)
Prepaid Salaries/Accrued Salaries
Beg. Balance - Prepaid 2,200 2,600 Balance end - Prepaid
Chapter
Salaries5: Cash to Accrual Salaries
Balance end - Accrued 1,600 1,800 Beg. Balance - Accrued
Salaries Salaries
Payments 249,350 248,750 Expenses
Total 253,150 253,150

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
Question No. 2
Beg. Balance Balance end

100,000
Cost of PPE acquired 120,000 Cost of PPE disposed
1
(squeeze) 40,000
60,000
Total 160,000 160,000
Accumulated depreciation
Balance end 18,000 15,000 Beg. Balance
Accumulated depreciation Depreciation expense
18,000
of PPE disposed 15,000
Total 33,000 33,000
Cost 40,000
Equipment
SUMMARY OF ANSWERS:
1. D 2. A
Prepaid Insurance
Beg. Balance 7,500 1 6,000 Balance end
Payments 41,500 | 43,000 Expenses(squeeze)
Total 49,000 49,000
PROBLEM 5-6
Question No. 1
2
Question No. 2
Interest Receivable
Beg. Balance 14,500 I 3,700 Balance end

Income (squeeze) 112,700 | 123,500 Collections
Total 127,200 127,200
Question No. 3
Salaries payable
Balance end 61,500 53,000 Beg. Balance
Total 542,500 542,500
Question No. 4
Accounts rec eivable trade
Sales 1,980,000 | 1,845,000 Collections (squeeze)
Total 2,395,000 2,395,000
Question No. 5
Accounts receivable trade
Sales 1,980,000 1 1,820,000 Collections (squeeze) Write-
25,000 off
Total 2,395,000 2,395,000
Question No. 6
Beg. Balance 415,000 1 1 550,000 Balance end
Sales 1,980,000 1,840,000 | Collections (squeeze) Write-
Recoveries 20,000 | 25,000 off
Total 2,415,000 2,415,000
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4.
A 5. A 6. B
PROBLEM 5-7
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R Increase in N/R
100,000 II 100,000 Write-off
Sales on account 4,260,000 || 10,000
3
(squeeze) II 4,200,000 Collections
30,000 Sales discounts || 20,000
Sales ret. and allow.
Total 4,360,000 4,360,000
Question No. 2
Accounts payable
Cash paid to creditors 2,800,000
200,000 Decrease in Accounts payable
2,650,000 Gross purchases
Purchase discounts 40,000
(squeeze)
Purchase returns 10,000
Total 2,850,000 2,850,000
Question No. 3
Merchandise inventory
Decrease in Inventory 25,000 40.0 Purchase discounts
1 10.0 Purchase returns
Gross purchases 2,650,000 1 | 2,625,000 Cost of sales (squeeze)
Total 2,675,000 2,675,000

Question No. 4
^^^^^^^^^^RentalreceivableZUnearnedRent^ncome
Rental revenue 454,000
(squeeze) 14.0 Increase in Rental
receivable
40.0 Decrease in Unearned
rental
400,000 Collections from tenants
Total 454,000 454,000
Question No. 5
Prepaid interest /Interest Payable
114,000 Interest expense
Decrease in Prepaid 5,500
(squeeze)
interest
Increase in Interest 8,500
payable
Interest paid 100,000
Total 114,000 114,000
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. D
4
PROBLEM 5-8
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance - A/R 200,000
250.000 Bal. end - A/R
Beg. Balance - N/R 300,000
1,000,000 100.0 Bal. end - N/R
Sales on account 20,000 Sales ret. and allow.
(squeeze) 10,000 Sales discount
1,120,000 Collections
Total 1,500,000 1,500,000
Question No. 2
Accounts payabl e/Notes payable
50,000 Beg. Balance - A/P
Balance end - A/P
100,000 Beg. Balance - N/P
Balance end - N/P 25.000
650,000 Gross purchases
Purchase returns 75.0 (squeeze)
allow and 40,000
Purchase discount
Payments 10.0 650,000
Total 800,000 800,000
Gross purchases Less: 650.000

Purchase ret and allow 40.000
Purchase discounts Net 10.0 50,000
Purchases 600.000
Question No. 3
Sales 1,000,000
Less: Sales ret and allow 20,000
Sales discounts Net Sales 10,0 30,000
Less: Cost of Sales 970,000
Merchandise inventory beg.
Add: Net Purchases Purchases Add: 200,000
Freight-in Gross Purchases Less:
Purch. Ret and allow Purchase 600,000
discounts Total goods available for
sale Less: Merchandise inventory, 650,000
end Gross Income / Gross Profit 40.000
10.0 600,000
800,000
100,0 700,000
270,000
5
Question No. 4
6
Prepaid/Accrued Salaries
Beg. Balance -Prepaid 100,000 125,000 Balance end - Prepaid
Salaries Salaries
Salaries Salaries
Payments 350,000 300,000 Salaries expense
(squeeze)
Total 500,000 500,000
Question No. 5
Accrued rent/ Unearned rent
Beg. Balance - Accrued 70,000 40,000 Balance end - Accrued
rent rent
Balance end - Unearned 40,000 80,000 Beg. Balance - Unearned
rent rent
Rent income (squeeze) 490,000 300,000 Collection of rent
Total 600,000 600,000
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. B 5. B
PROBLEM 5-9
Question No. 1
Accounts rec eivable trade
Beg. Balance 200,000 300,000 Balance end
Recoveries 8,000 20,000 Sales discounts
Sales (squeeze) 1,570,000 1,408,000 Collections including
recoveries (1,498,000-
80,000+20,00-30,000)
50,000 Accounts written-off
Total 1,778,000 1,778,000
Sales 1,570,000
Less: Sales discount 20,000
Net Sales
1,550,000
Question No. 2
Accounts payable trade
Payment (1,210,000- II 150,000 Beg. Balance
20,000+30,000) 1,210,000 1,170,000 Purchases (squeeze)
Purchase ret. and allow. 10,000
Balance end 100,000
7
8
Total 1,320,000 1,320,000
Purchases 1,170,000
Less: Purchases discount 10,000
Net Purchases 1,160,000
Question No. 3
380,000 1 330,000 Balance end
Beg. Balance 1 1,210,000 Cost of Sales (squeeze)
(1,170,000-10,000)
Total 1,540,000 1,540,000
Question No. 4
Rent Re eivable
Beg. Balance
Accounts written off 70,000 1
50,000 80,000
20,000 Beg.Balance
Balanceend
Rent income
Balance end (squeeze) 130,000
30,000 | 120,000 Collections
52,000 Doubtful account
Total expense(squeeze)
200,000 200,000
8,000 Recoveries
Total 80,000 80,000
Question No. 5
Allowance for Doubtful accounts
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. A
PROBLEM 5-10 Comprehensive

Question No. 1
Professional fees 5,250,0001 5,000,000 Collections
(squeeze)
Total 5,750,000 5,750,000
9
Question No. 2
Professional Fees (See No. 1) 5,250,000
1,300,000
Less: Rent expense (1.2M +100,000)
Supplies expense
(800,000+300,000-250,000) 850,000
Other operating expense 750,000
Interest expense (1M x 12% x 9/12) 90,000
Depreciation expense (2,500,000/10) 250,000 3,240,000
Net income 2,010,000
Question No. 3
Cash 1,500,000
Accounts Receivable 750.000
Supplies 250.000
Total Current Assets 2,500,000
Question No. 4
Furniture and fixtures Less: 2.500.000
Accumulated Depreciation
(125,000 + 250,000) 375,000
Total Noncurrent Assets 2.125.000
Question No. 5
Total current assets (See No. 3) Total 2.500.000
noncurrent assets (See No. 4) Total 2.125.000
Assets 4,625,000
Question No. 6
Notes Payable Accrued 1,000,000
rent 100,000
Accrued interest on notes payable
(1,000,000 x 12% x 9/12) 90,000
Total Current Liabilities 1,190,000
Question No. 7
Total assets (See No. 5) 4,625,000
Less: Total liabilities (See No. 6) - all are current 1,190,000
Total Owner's Equity 3,435,000
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. A 5. A 6. C 7. B
10
Chapter 5: Cash
PROBLEM 5-11to Accrual
Question No. 1
Beg. Balance 124,000 1 1 146,000 Balance end
Sales on account 13,000 Sales discount
(squeeze) 1,535,000 | | 1,500,000 Collections
Total 1,659,000 1,659,000
Sales on account 1,535,000

Add: Cash sales 160,000
Total sales 1,695,000
Question No. 2
Gross sales (see No. 1) 1,695,000
Less: Sales discount 13,000
Net sales 1,682,000
Question No. 3
Accounts Payable
Payments 1,206,000 1 382,000 Beg. Balance
Balance end 1 410,000 | | 1,234,000 Purchases (squeeze)
Total 1,616,000 1,616,000
Purchases on account 1,234,000

Add: Cash purchases 120,000
Total Purchases 1,354,000
Question No. 4
Merchandis eInventory
Net purchases 1
1,354,000 | 1,350,000 Cost of sales (squeeze)
Total 1,540,000 1,540,000
Question No. 5
Prepaid G&A/ 'Accrued G&A
Interest Interest
Interest Interest
Total 222,600 222,600

Question No. 6
General and administrative expense (see No. 5) 207,200
Depreciation expense 84,000
11
Chapter 5:expense
Warranty Cash to Accrual 6,400
Total operating expense 297,600
Question No. 7
Selling price of land 20,000
Less: Book value of land 16,000
Gain on sale of land ____4,000
Question No. 8
Selling Price 12,000
Less Book value
Cost 25,000
Less: Accumulated depreciation 16,000 ______9,000
Gain on sale of warehouse equipment ____3,000
Question No. 9
Less: Book value
Cost 48,000
Less: Accumulated depreciation 20,000 ______28,000
Gain on sale of boiler 14,000
Question No. 10
Net Sales 1,682,000
Less: Cost of Sales 1,350,000
Gross Profit 332,000
Less: Operating expenses 297,600
Gain on sale (14,000+3,000+4,000) 21,000
Net income 55,400
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. A 5. B
6. A 7. A 8. C 9. B 10. A

Question No. 1
Sales (squeeze) 800,000 10,000 Sales returns
740,000 Collections
1
Total 950,000 950,000
12
Beg. Balance 190.0 II 220.0 Balance end
Net Purchases (squeeze) 420.0 || 390.0 Cost of Sales
Total 610,000 610,000
Question No. 3
Accounts Payable trade
Payments (squeeze) 470,000 230.0 Beg. Balance - Accounts
Question No. 2 payable
428.0 Gross purchases
Sales on account 800,000
(420,000+8,000)
Add: Cash sales 100,000
Total sales 900,000
Less: Sales returns and allowances 10,000
Net sales 890,000
Less: Cost of sales (squeeze) 390,000
Gross profit (200,000/40%) 500,000
Purchase returns and 8,000
allowances
Balance end - Accounts 180,000
payable
Total 658,000 658,000
Question No. 4
Total payment of Accounts payable and admin expenses 518,000 Less:
Payment of Accounts payable 470,000
Payment of admin expenses 48,000
Question No. 5
Payment of admin expenses 48,000
Divided by: Percentage of cash expenses to total admin
expense 80%
Total admin expenses 60,000
Add: Selling expenses 200,000
Total selling and administrative expense 260,000
Question No. 6
Total administrative expenses 60,000
Less: Payment of administrative expense 48,000
Non-cash administrative expenses 12,000
Less: Depreciation for building
(440,000 x 60% x 5% x 9/12) 9,000
13
Chapter 5: Cash
Depreciation for to Accrualand fixtures
furniture 3,000
Divided by: Number of months used over 12 months ____________ 6/12
Annual depreciation 6,000
Divided by: Depreciation rate 10%
Cost of Furniture and Fixtures (no residual value) 60,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. C 6. A
PROBLEM 5-13
Question No. 1
Sales on account 930,000 30,000 Sales returns and
(squeeze) allowances
Collections
1,000,000
Total 1,730,000 1,730,000
Sales 900,000
Less: Sales returns and allowances 30,000
Net sales 900,000
Question No. 2
150.000 144.000 Balance end
Beg. Balance 434.000 440.000 Cost of Sales
Net Purchases (484,000 -
50,000)
Total 584,000 584,000
Accounts Payable trade

Payments 394.000 Beg. Balance
1 160,000 Purchases
Purchase ret. and allow 50.000
484,000
Balance end 200.000
Payment
Total to suppliers was computed as follows:
644,000 644,000
Reported cost of sales 400,000
Add: Merchandise inventory, beginning 144,000
Less: Merchandise inventory, end 150,000
Payments to suppliers 394,000
14
Chapter 5:No.
Question Cash
3 to Accrual
Prepaid Interest/Accrued Interest
Interest Interest
Interest Interest
Interest payments 40,000 38,000 Interest expense
Total 67,000 67,000
Unadjusted operating expense 200,000

Less: Adjustment of overstated interest expense 2,000
Adjusted total operating expense 198,000
Question No. 4
Accrued Rent/ Unearned Rent
Beg. Balance - Accrued 22,000 19,000 Balance end - Accrued
Rent Rent
Balance end - Unearned 18,000 20,000 Beg. Balance Unearned
Rent Rent
Rent income 49,000 50,000 Collections
Total 89,000 89,000
Question No. 5
Net sales (see No. 1) 900,000
Less: Cost of sales (see No. 2) 440,000
Gross income 460,000
Less: Operating expense (including interest expense ofP38,000) 198,000
Add: Rent Income 49,000
Net Income 311,000
SUMMARY OF ANSWERS:
1. A 2. D 3. D 4. B 5. B
PROBLEM 5-14
Question No. 1
Accounts receivabl e/Notes Receivable
Beg. Balance - A/R 1,600,000 2,000,000 Balance end - A/R
Beg. Balance - N/R 400,000 1,200,000 Balance end - N/R
Sales on account 3,000,000 Collections of A/R
(squeeze) 5,660,000 1,000,000 Collections of N/R
100,000 Sales discounts
300,000 Sales returns
60,000 Accounts written-off
Total 7,660,000 7,660,000
15
5,660,000
800,000
Chapter
Sales on5:account
Cash toAdd:
Accrual
Cash sales Total Sales 6,460,000
Question No. 2
Accounts payable/Notes payable
Balance end - N/P 500,000 700,000 Beg. Balance - N/P
Balance end - A/P 1,000,000 1.200.0 Beg. Balance - A/P
Payments of A/P 1.500.000 Purchase on account
Payments of N/P 1.300.0 2.480.0 (squeeze)
Purchase discount 80,000
Total 4,380,000 4,380,000
Purchases on account 2,480,000

Add: Cash purchases 600,000
Total purchases 3,080,000
Question No. 3
Accrued interest payable
Balance end 40,000 1 80,000 Beg. Balance
Interest paid 60,000 Interest expense
100,000 1
(squeeze)
Total 140,000 140,000
Question No. 4
Unearnedi ■ent income
Balance end 40,000 1 120,000 Beg. Balance
Rent income (squeeze) 240,000 | 160,000 Collections from tenants
Total 280,000 280,000
Question No. 5
Beg. Balance 1,600,000 1 1,000,000 Balance end
Purchases (see No. 2) 1
3,080,000 80,000 Purchase discount | 3,600,000 Cost
of sales (squeeze)
Total 4,680,000 4,680,000
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. D 5. A
16
Chapter 6: Correction
CHAPTER of Errors
6: CORRECTION OF ERRORS
Note to professor:
Page Existing data: Change to:
109 Omission of deferred expense
The entire amount was debited to asset The entire amount was debited to
account and no adjustment was made at expense account and no adjustment
the end of 2015. was made at the end of 2015.
109 Omission of Deferred Income

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

Accrued salaries expense of P4,000 was Accrued salaries expense of P4,000
not recorded at the end of 2016. was not recorded atthe end of 2015.
110 Omission of Accrual of Revenues

Accrued rent receivable of P8,000 was Accrued rent receivable of P8,000 was
not recorded at the end of 2016. not recorded atthe end of 2015.
111 Error affecting ending inventory (e.g.

overstatement)
Effect of the error in 2016 Net Income - Effect of the error in 2016 Net Income -
X U
112 Additional information # 4

Accrued interest receivable of P8,000 Accrued interest receivable of
was ... P15,000 was ...
113 Requirement No. 1

Total 2015 Adjusted Income - 399,000 Total 2015 Adjusted Income -
181,000

Total 2015 Adjusted Income - 345,000 Total 2015 Adjusted Income -
235,000
117 Improper capitalizing of expense

Effect of error in 2016 Net income O Effect of error in 2016 Net income
U
Improper expensing of capital
expenditure Effect of error in 2016 Net income
Effect of error in 2016 Net income U O
17
PROBLEM 6-1 Income Statement and SFP Errors Questions Nos. 1-6
2015 2016
RE, end of RE, end of
of Errors Workin g
Chapter 6: CorrectionNet the Net Workin g the
income capital year income capital year
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1 - - - - - -
2 - - - - - -
Adjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
Question No. 7
Assuming errors were discovered in 2015
ADJUSTING ENTRIES Debit Credit
1) Interest expense 20,000
Rent expense 20,000
2) Accounts receivable 30,000
Notes receivable 30,000
1) No entry
1) No entry
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. D 6. A
PROBLEM 6-2 Counterbalancing Errors Questions Nos. 1-6
2015 2016
Net Workin g Net Workin g
income capital R/E income capital R/E
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1 (10,000) (10,000) (10,000) 10,000 -
2 15,000 15,000 15,000 (15,000) -
3 6,000 6,000 6,000 (6,000) -
4 (16,000) (16,000) (16,000) 16,000 -
Adjusted
balances 95,000 295,000 95,000 155,000 400,000 250,000
18
Question No. 7
A. Errors were discovered in 2015
1) Rent expense 10,000
Rent payable of Errors
10,000
2) ADJUSTING ENTRIES 15,000 Debit Credit
Interest receivable
1)Interest
Retained
incomeearnings 10,000
Rent expense 15,000
3) Prepaid insurance 10,000
2)Insurance expense 15,000
6,000
Interest income 6,000
Retained earnings 15,000
4) 3)Rent Insurance
revenue expense 16,000
Unearned rent earnings
Retained revenue 6,000 16,000
6,000
4)
Rent revenue 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
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. A 5. B 6. A
PROBLEM 6-3 Counterbalancing Errors Questions Nos. 1-6
2015 2016
Net Workin g Net Workin g
income capital R/E, end income capital R/E, end
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1 (50,000) (50,000) (50,000) 50,000 - -
2 70,000 70,000 70,000 (70,000) - -
3 20,000 20,000 20,000 (20,000) - -
Adjusted
balances 140,000 340,000 140,000 110,000 400,000 250,000
19
Question No. 7
1) Purchases 50,000
Accounts of Errors
payable
50,000
2) ADJUSTING ENTRIES 70,000Debit Credit
Accounts receivable
Sales 70,000
Purchases 50,000
3)
Inventory 20,000
CostSales
of sales 70,000 20,000
Retained earnings
7,000
Inventory, beginning 6,000
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
If 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. A 5. B 6. A
PROBLEM 6-4 Noncounterbalancing Errors Questions Nos. 1-6
2015 2016
RE, end of RE, end of
Net Workin g the Net Workin g the
income capital year income capital year
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1. (18,000) (18,000) (18,000) (6,000) (24,000) (24,000)
2. 32,000 32,000 32,000 16,000 48,000 48,000
3. (12,000) - (12,000) - - (12,000)
4. 160,000 - 160,000 (40,000) - 120,000
5. (25,000) - (25,000) - - (25,000)
6. 4,000 - 4,000 4,000 - 8,000
(20,000) (20,000) (20,000)
Adjusted
balances 221,000 314,000 221,000 124,000 424,000 345,000
20
ChapterQuestion
6: Correction
No. of
7 Errors
1) Insurance expense 18,000
Prepaid insurance 18,000
2) Unearned rent income 32,000
Rent income 32,000
3) Depreciation expense 12,000

Accumulated depreciation 12,000
4) Building improvements 200,000
Repairs expense 200,000
5) Other income 20,000

Loss on sale 5,000
Building 40,000
6) Repairs expense 20,000

Building 20,000
Errors were discovered in 2016

1) Retained earnings 18,000
Insurance expense 6,000

Rent income 16,000
4) Building improvements 200,000
Depreciation expense
40,000
Building 40,000
21
Chapter6)6: Correction of Errors
Building
20,000
8,000
Accumulated depreciation Retained 4,000
earnings 4,000
Depreciation expense
Errors were discovered in 2017
Retained earnings
48,000
3)
Retained earnings
12,000
12,000
4)
Building improvements
200,000
Retained earnings
200,000
Depreciation expense 40.000
Retained earnings 80.000
120,000
5) Retained earnings 25.000
Accumulated depreciation Building 15.000
40,000
6)
Retained earnings
20,000
Building
20,000
Accumulated depreciation Retained 8,000
earnings 8,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. B 6. C
PROBLEM 6-5 (COMPREHENSIVE) Questions Nos. 1-3
Effects of error in
Net income Working
2014 2015 Capital
1) MI over, NI over 10,000 (10,000)
MI under, NI under (8,000) (8,000)
2) Purchases over, NI under (20,000) 20,000
(40,000) (40,000)
3) Sales over, NI over 20,000 (20,000)
70,000 70,000
4) Expenses over, NI under (80,000)
Depreciation exp under, NI over 20,000
22
Chapter 6: Correction of Errors
5) Other income over 20,000
*Loss under, NI over 5,000
Adjusted balance (45,000) 32,000 22,000
Computation of loss:
Less: Book value
Cost 40,000
Less: Accumulated depreciation 15,000 25,000
Loss on sale (5,000)
Questions No. 4
Effect of errors to Retained Earnings in 2015
Understatement to 2014 net income 45,000
Overstatement to 2015 net income 32,000
Net understatement to 2015 retained earnings 13,000
Questions No. 5
1) Retained earnings, beg 10,000
Merchandise inventory, beg 10,000
Merchandise inventory, end 8,000
Cost of Sales 8,000
2) Purchases 20,000
Advances supplier 40,000
Purchases 40,000
3) Retained earnings, beg 20,000

Sales 20,000
Sales 70,000
Advances customers
70,000
4) Depreciation expense 20,000
Improvements 100,000
5) Accumulated depreciation
15,000
Retained earnings, beg 25,000
Equipment 40,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. C
23
PROBLEM 6-6 Comprehensive Questions Nos. 1-5
12/31/2
2014 2015 015
Net Workin g Net Workin
Income capital Income g capital R/E
Ending Inventory 2014
understated, NI (6,000) (6,000) 6,000 - -
understated
Ending Inventory 2015
overstated, NI overstated 10,000 10,000 10,000
Depreciation exp. 2014
(11,000) - - - (11,000)
overstated, NI understated
Depreciation exp. 2015 (7,000) - (7,000)

overstated, NI understated
Accrued expense
understated, NI overstated 4,500 4,500 (4,500) - -
2014
Accrued expense
understated, NI overstated 7,500 7,500 7,500
2015
Prepaid expense
understated, NI (5,000) (5,000) 5,000 - -
understated 2014
Prepaid expense
understated, NI (12,000) (12,000) (12,000)
understated 2015
Accrued revenues
understated, NI (3,000) (3,000) (3,000)
understated 2015
Deferred revenues
understated, NI overstated 1,200 1,200 (1,200) - -
2014
Total (16,300) 5,300 800 2,500 (15,500)
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. C
24
PROBLEM 6-7 Questions Nos. 1, 2 and 4
2013 2014 2015
Unadjusted balances 3,000,000 (1,000,000) 3,500,000
1 Overstatement of ending inventory - 2013 (120,000) 120,000
2 Understatement of ending inventory - 2015 210,000

3 Understatement of accrued expense - 2013 (40,000) 40,000
4 Overstatement of accrued exp. 90,000
5 Understatement of Depreciation Expense (180,000)
6 Overstatement of Depreciation Expense 30,000
7 Overstatement of Purchases
2013 30,000 (30,000)
2014 40,000 (40,000)

8 Overstatement of other income
Correct gain 20,000
Less: Per record 5,000 (15,000)
Adjusted balances 2,870,000 (1,025,000) 3,790,000
Computation of correct gain:

Selling Price Less: Book 20,000
value Cost
Less: Accumulated 40.000
depreciation Loss on sale 25.0 15,000
5,000
Questions Nos. 3 and 5
Adjusted net income (loss):
2013
2014 2.870.0
Total RE, 12/31/2014 Adjusted (1,025,000)
net income 2015 Total RE, 1.845.0 No. 3
12/31/2015 3.790.000
5.635.0 No. 5
SUMMARY OF ANSWERS:
1. B 2. B 3. B
4. C 5. D
PROBLEM 6-8 Question No. 1

Entry made: Debit Credit
Cash 30,000
Equipment 30,000

Accumulated depreciation (70,000 x 10%) 7,000
25
"Should be” entry: Debit Credit
Cash 30,000
Loss on sale 10,000
Equipment 70,000
Adjusting entry in 2015: Debit Credit

Equipment 70,000
Question Nos. 2-7
2013 2014 2015
Workin Workin
Net g Net Working Net g
income capital income capital income capital
Unadjusted Over/ Over/ Over/
balances 600,000 (under) 700,000 (under) 800,000 (under)
Exp over, NI
under, WC
under
2013 1,000 (1,000) (1,000)
2014 1,500 (1,500) (1,500)
2015 600 (600)
Income over,
WC over:
2013 (2,000) 2,000 2,000
2015 (3,000) 3,000
EI under, NI
under, WC
under:
2013 10,000 (10,000) (10,000)
2014 20,000 (20,000) (20,000)
EI over, NI
over, WC
over (25,000) 25,000
Loss under,
NI over (10,000)
Depreciation
exp. Over, NI
under 7,000
Adjusted bal. 609,000 (9,000) 709,500 (21,500) 751,100 27,400
(2) (3) (4) (5) (6) (7)
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. B 5. D 6. D 7. A
26
Chapter 8: Cash and Cash Equivalents
CHAPTER 8: CASH AND CASH EQUIVALENTS

Note to professor:
Page Existing data: Change to:
179 1. Customer's NSF check returned by Beg Rec. Disb. End
bank in January and redeposited in (3,400) 3,400
February (no entry in January and
February), P 3,400
Erroneous bank charge - October Erroneous bank charge - October
7,000 18,000
Erroneous bank charge - November Erroneous bank charge - November
18,000 7,000
182
Requirement No. 6: Adjusting entries #3 3) Rent payable
3) Salaries payable 120,000
120,000
PROBLEM 7-1 Cash and Cash Equivalents

Postal money order 50,000
Correct cash balance in a general checking account with BPI 320,000
Treasury warrants 20,000
Currency and coins in a petty cash fund 1,000
Cash and cash equivalents P 391.000
Suggested answer: B
Reported cash and cash equivalents 6,325,000
Certificate of deposits with maturity of 120 days (500,000)
Postdated check (125,000)
Compensating balance - legally restricted (500,000)
Adjusted cash and cash equivalents P5.200.000
Suggested answer: C

Bills and coins on hand P 52,780
Traveler’s check 22,400
Petty cash excluding paid cash vouchers of P1,650 350
Money order 800
Checking Account Balance in Bank of Philippine Island 22,000
Total P 98.330
Suggested answer: D
Cash on hand P 80,000
Checking account No. 143 - BPI 200,000
27
Checking account No. 155 - BPI (30,000)

*Securities classified as cash equivalents 3,600,000
Checking account No. 155 - BPI P 3,850,000
*Breakdown of securities classified as cash equivalents
Date Maturity
Securities: Acquired Date Amount
120-day Certificate of Deposit 12/10/2014 01/31/2015 P 600,000
BSP-Treasury Bills (No.2) Money 10/31/2014 01/20/2015 1,000,000
Market Funds 11/21/2014 02/10/2015 2,000,000
Suggested answer: A

Cash in bank - checking account 5,000,000
Cash in bank - payroll account 1,000,000
Cash on hand 500,000
Treasury bills, purchased December 15, 2013 and
due March 15,2014 2,000,000
Unreleased checks 100,000
Postdated checks ( 200,000)
Cash and cash equivalents P8.400.000
Suggested answer: B

Petty cash fund (70,000-15,000-5,000) 50,000
Current account - Metro Bank (4,000,000+100,000) 4.100.000
Cash and cash equivalents P4.150.000
Suggested answer: C
PROBLEM 7-7 Effective Interest Rate

SOLUTION:
Question No. 1
LetX = Principal amount of the loan Principal X
Less: Compensating balance 5%X
Add: Current balance 50,000
Amount needed P3.375.000
28
X-.05X+50,000
.95X
.95X/.95 3.375.0 3,375,000-50,000
X 3,325,000/.95
3.500.000
Question No. 2
420.000
Annual interest payment (3,500,000 x 12%) Interest
income on the loan proceeds in the compensating 5,000
balance [3.5M-3,375,000) x4%] Effective interest 415.0
Divide by loan proceeds (3,500,000-175,000) Effective 3,375,000
interest rate 12.30%
Suggested answers:
1. C 2. C
PROBLEM 7-8 Petty Cash Fund Requirement No. 1

Currencies
Coins
A check drawn by the company payable to the order of 3,000
450
the petty cash custodian, representing her salary
Adjusted Petty Cash Fund
3,800
Requirement No. 2 Petty cash Accounted: 7,250
Currencies
Coins
Petty cash vouchers:
Transportation Office supplies Repair of computer 3,000
450
Loans to employees Miscellaneous expenses Postage
A check drawn by the company payable to the order of
650
the petty cash custodian, representing her salary
160
An employee’s check returned by the bank because of
400
insufficient funds
600
A piece of paper with names of several employees
240
together with a contribution for a wedding gift for an
200
employee. Attached to the sheet of paper is a
currency of
3,800
1,200
500 11,200
29
Less: Petty Cash Accountabilities

PCF imprest balance 10,000
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 500 10,500
Petty cash overage 700
Requirement No. 3: Adjusting Entries Debit Credit

1) Transportation expense 650
Office supplies expense 160
Repairs expense 400
Advances to employees 600
Miscellaneous expense 240
Postage 200
Petty Cash fund 2,250
2) Unused stamps 50
Postage 50
3) Petty cash fund 700

Miscellaneous Income 700
4) Advances to employees 1,200

Petty cash fund 1,200
PROBLEM 7-9 Petty Cash Fund

Coins and currencies 17,000
Check drawn by the company payable to the order of the petty
cash custodian, representing salary for the month 18.000
Petty cash P 35.000
Suggested answer: C
PROBLEM 7-10 Bank Reconciliation

Bank Book
Unadjusted balances P126,300 P123,310
Outstanding check, net of certified checks (12,300) -
Deposit in transit (Undeposited collections) 7,850 -
Book error - disbursement for utilities - 360
Note charged by the bank, including interest - (6,500)
Bank service charge - (240)
Erroneous bank credit (5,670) -
NSF check - (- 750)
Adjusted balance P116.180 P116.180
30
The following are the adjusting entries to be recorded in the company’s books. Note
that only book reconciling items are recorded.
1] Cash 360
Utilities expense 360
2] Notes payable 6,000

Interest expense 500
Cash 6,500
3] Bank service charge 240

Cash 240
4] Accounts receivable 750

Cash 750
PROBLEM 7-11 Bank Reconciliation

Oct. 31 Receipts Disb Nov. 30
Unadjusted bank bal 18,005 17,709 25,620 10,094
Erroneous bank credit (500] (500]
DIT: October 1,790 (1,790]
November 3,600 3,600
OC: October (6,681] (6,681]
Nov. (760+1,868] 2,628 (2,628]
13,114 19,019 21,567 10,566
Unadjusted book bal 11,534 18,269 21,575 8,228

Credit memo Oct. 1,600 1,600
Nov. 750 750
NSF-Nov 665 (665]
BSC: Oct (20] (20]
Nov 22 (22]
35 (35]
Check No. 148
overstated
disbursement (1,000] 1,000
Check No. 150
understated
disbursement 270 (270]
13,114 19,019 21,567 10,566
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. D 5. A
31
PROBLEM 7-12 Deposit in Transit

Deposit in transit, beg P 50,000
Add: Book debits for the month P 400,000
Less: CM recorded this month 5,000
Error - check received (Jan] 36,000
Error - check issued (Jan] 27,000
Add: Error - check received (Feb] 16,000 348,000
Total 398,000
Less: Bank debits for this month P 360,000
Less: CM for this month 6,000
Erroneous bank credit - Feb 2,500
Erroneous bank charge - Jan 1,000 350,500
Deposit in transit, end P 47,500
Suggested answer: A
PROBLEM 7-13 Outstanding Checks

Outstanding checks, beg (squeeze] P 12,880
Add: Book credits for the month P 85,800
Less: Error in recording 1,800
Service charge recorded 30 83,970
Total 96,850
Less: NSF check returned 2,300
DM for this month 3,000 92,350
Outstanding checks, end P 4,500
Suggested answer: A
PROBLEM 7-14 Proof of Cash

Question No. 2
Deposit in transit, beg
Add: Book debits for the month P 151,230 P 5,200
Less: CM recorded this month 1,500 149,730
Total 154,930
Less: CM for this month 4,277
Erroneous bank credit - Oct 3,000
Erroneous bank debit - Sep 600 142,074
Deposit in transit, end P 12.8.56
32
Question No. 3
Outstanding checks, beg (squeeze) Add: P 8,007
Book credits for the month Less: DM P 111,423
recorded (526+50) 576 110.847
Total 118,854
Less: Erroneous bank debits-Oct 900
Erroneous bank credits-Sep DM for this 1,000
month (700+65) Outstanding checks, end ) 765 107,433
P 11.421
Question Nos. 1,4 and 5
BANK 30-Sep
Unadjusted bal - bank 130,560 Receipts Disb. 31-Oct
Deposit in transit: 149,951 110,098 *170,413
September 30 5,200
October 31 Outstanding checks: (5,200)
September 30 (8,007) 12,856 12,856
October 31
Erroneous bank credit (1,000)
(8,007)
Erroneous bank credit 11,421 (11,421)
Erroneous bank debit- Oct (1,000)
Erroneous bank debit- (3,000) (3,000)
Sep _______600
Adjusted balances 127,353 (900) 900
*(130,560+149,651-110,098)
BOOK 30-Sep (600)
Receipts Disb. 31-Oct
Unadjusted bal - book **126,429 154,007
151,230 111,423
111,612 169,748
166,236
Bank service charge:
September 30 (50) (50)
October 31 65 (65)
NSF checks:
September 30 (526) (526)
October 31 700 (600)
CM for collection:
September 30 1,500 (1,500)
October 31 4,277 4,277
Adjusted balances 127,353 154,007 111,612 169,748
:(166,236+111,423-151,230)
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. D
33
Question No. 1
Outstanding checks, beg. 100,000
Add: Checks issued 2,500,000
Total 2,600,000
Less: Checks paid by the bank 2,200,000
Outstanding checks, end 400,000
Question No. 2
Deposits in transit, beg Add: Deposits made 300.0
Total 1,800,000
Less: Deposits acknowledged by the bank 2,100,000
Deposits in transit, end 1,600,000
Question No. 3 to 5 500.000
BANK 31-May Receipts Disb. 30-Jun
Unadjusted bal - bank 2,600,000 *2,190,000 **2,410,000 2,380,000
Deposit in transit:
May 31 300,000 (300,000)
June 30 500,000 500,000
Outstanding checks:
May31 (100,000) (100,000)
June 30 400,000 (400,000)
Erroneous bank credit (60,000) (60,000)
Erroneous bank charge 40,000 (40,000)
Adjusted balances 2,780,000 2,350,000 2,650,000 2,480,000
*(1,600,000+40,000+550,000)
**(2,200,000+60,000+50,000+100,000)
BOOK 31-May Receipts Disb. 30-Jun
Unadjusted bal - book 2,190,000 ***2,400,000 2,500,000 2,090,000
May31 (10,000)
(10,000)
June 30 (50,000)
CM for collection: 50,000
May31 600,000 (600,000)
June 30 550,000 550,000
NSF checks - June 30 100,000 (100,000)
Adjusted balances 2,780,000 2,350,000 2,650,000 2,480,000
***(1,800,000+600,000)
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. A
34
Question No. 1
Outstanding checks, beg P 16,250
Add: Checks issued this month
Book disbursements (squeeze] P128,750
Less: DM recorded this month 2,500 126,250
142,500
Total
Less: Checks paid by the bank P 133,750
130,000
Erroneous bank charge 3,750
P 12.500
Outstanding checks, end
Question No. 2
Deposit in transit, beg P 12,500
Add: Deposits made by the company 152,500
Total 165.000
Less: Deposits acknowledged by the bank 145.000
Deposit in transit, end P 20.000
Question No. 3
Unadjusted cash in bank balance per ledger P 37,500
Add: Under-footing of cash receipts Total 2,500
Less: Unrecorded bank service charges 40,000
(3,250 +1,500-2,500]
Adjusted cash in bank balance, 12/31 2,250
P 37.750
Question No. 4
Bank service charges per bank statement in
December Less: Bank service charge in
December recorded in December P 3,250
Total BSC recorded in the books Dec P 2,500
Less: BSC in Nov. recorded in Dec. 1,500
Unrecorded BSC charge in December
Question No. 5 1,000
P 2.250
Unadjusted cash in bank, November (squeeze]
Add: Book Receipts (152,500 - 2,500]
Total P 16,250
Less: Book disbursements Unadjusted cash in 150,000
bank, December 166,250
128,750
Unadjusted cash in bank, November (squeeze]
P 37,500
Less: BSC in November Adjusted
cash in bank, December P 16,250
1,500
SUMMARY OF ANSWERS:
P 14.750
1. C 2. D 3. C 4. D 5. B
35
Question No. 1
Beg. Bal., 7/1 P 128,384
Add: Cash receipts for July 1,364,858
Cash receipts for Aug. 1,839,744
Total P3,332,986
Less: Cash disbursement for July 1,330,882
Cash disbursement for Aug. 1,712,892
Bank reconciliation item 750
Unadjusted balance P 288,462
Question No. 2
Outstanding check, Aug. 31 Add: Checks P 67,122
paid by the bank Bank debits except serv.
charge Less: Erroneous bank charge DM P1,702,830
on Interest on note 1,166
Total 4,950 1.696.714
Less: Checks issued by the company this P1,763,836
August
1,712,892
P .50.944
36
Questions No 3 to 5
BANK 31-Jul Receipts Disb. Aug. 31
Unadjusted balances 180,250 1,830,752 *1,702,918 308,084
Outstanding checks July
31 August 31 Deposit in
( 50,944) ( 50,944)
transit July31 August 31 ( 67,122)
67,122
Erroneous bank charge
Adjusted Balances ( 32,844)
(*1,702,830 + 88) 32,844
41,836 41,836
BOOK 1,166
Unadjusted balances Error 162,150 1,839,744 ( 1,1661 283,964
in recording check no. 216 1,717,930
taken up as P1,930 but
should be P1,390 (1,930- 31-Jul Receipts Disb. Aug. 31
1,390) P162,360 P1,839,744 **P1,713,642 P288,462
DM for int. on note Bank
service charge July 31
August 31 NSF for July 31 540
Adjusted balances 540
**(1,712,892+750) 4,950 ( 4,950)
( 52) ( 52)
88 ( 88)
( 698) - ( 6981
P162,150 P1,839,744 P1.717.930 P283,964
Outstanding check, July 31
37
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. A
PROBLEM 7-18 Proof of Cash Question No. 1
Beg. Balance, Nov. 30 P 50,900
Add: Total Collections from customers on Dec. 165,000
November bank coll. for customer note 8,000
Total 223,900
Less: Checks drawn for December 98,000
Bank service charges - November 100
Unadjusted cash balance, Dec. 31 P 125,800
Question Nos. 2-5

December
Nov. 30 Receipts Disb. Dec. 31
BANK 90,800 171,272 99,072 163,000
Unadjusted bank balance
NSF check, no entry on the books
for return and redeposit
Erroneous bank charge in ( 472) ( 472)
December ( 1,500) 1,500
Undeposited collection
November 30 5,000 ( 5,000)
December 31 8,000 8,000
Bank service charge charged to
another client 150 ( 150)
Outstanding check
Nov.30 ( 5,000) ( 5,000)
Dec. 31 7,700 ( 7,700)
BOOK
Unadjusted balance 50,900 173,000 98,100 125,800
NSF check recorded as reduction
of cash receipts returned in
December but also recorded in
December 1,800 1,800
Error in recording check No. 7159
entered as P30,000 but should be
3,000 27,000 27,000
Cancellation of check No. 7767 5,000 5,000
Bank service charge
Nov.30 ( 100) ( 100)
Dec. 31 150 ( 150)
Bank collection for customer's
note:
Nov.30 8,000 (8,000)
Dec. 31 7,000 7,000
38
SUMMARY OF ANSWERS:
1. B 2. D 3. D 4. B 5. B

Question No. 1 P 8,000
Outstanding checks, beg (squeeze]
Add: Checks issued this month Book P 148,000
disbursements Less: DM recorded this 2.500 145.500
month Total 153,500
Less: Bank disbursements P 150,000
Add: Paid out in currency Less: 2,000
NSF redeposited DM for this month 3,000
Outstanding checks, end 1.500 147.500
Question Nos. 2 to 5 P 6.000
BANK Sept. 30 Receipts Disb. Oct. 31
Unadj. balance - bank 100.000 200,000 150,000 150,000
Undeposited collections:
September 30 5,000 (5,000]
October 31 7,000 7,000
Outstanding checks:
September 30 (8,000] (8,000]
October 31 6,000 (6,000]
Paid out in currency 2,000 2,000
BOOK Sept. 30 Receipts Disb. Oct. 31

Unadj. balance - book 91,500 196,000 148,000 139,500
Customer's notes
collected:
September 30 8,000 (8,000]
October 31 13,000 13,000
September 30 (2,500] (2,500]
October 31 1,500 1,500
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. A 5. A
39

Question No. 1
Account No. 143: Bank _____ Book
Unadjusted balances P1,000,000 P1,099,400
Deposit in transit *80,000
Misplaced check ( 20,000)
O utstanding check (**60,000)
Undelivered check 15,000
Note charged by the bank - ( 74,400)
Adjusted balance P1.020.000 P1.020.000
*(100,000 - 20,000, Misplaced check)
**(75,000 -15,000, Undelivered check)
Question No. 2
Total Outstanding checks:
P 60,000
Account No.143
1,860,000
*AccountNo.144 Total
P 1.920.000
outstanding check
Outstanding check for Account No. 144 is computed as follows:

P2,000,000
Less: BSC
Outstanding December
checks, beg Add: 20,000 P 250,000
NSF check
Checks issued this month Book 100,000 1,880,000
Outstanding
Credits Less: checks, end
BSC November Total P3,500,000 P1,860,000
10,000 3,490,000
Less: Checks paid by the bank
P 3,740,000
Question Nos. 3 to 4
Bank Debits
December
Unadjusted bank balance
2,200,000 1,000,000 2,000,000 1,200,000
Deposit in transit:
November 30 90,000 (90,000)
**240,00
December 31 0 240,000
Outstanding check:
November 30 (250,000) (250,000)
December 31 1,860,000 (1,860,000)
Erroneous bank charge -
November 20,000 (20,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
40
Unadjusted book
balance 1,980,000 1,420,000 3,500,000 (100,000)
November
Chapter 30and Cash Equivalents
8: Cash (10,000) (10,000)
December 31 20,000 (20,000)
Unrecorded collections -
90,000 (90,000)
November 30
Uncollected customer's
note already recorded as
cash receipt (200,000) (200,000)
NSF - December 31 100,000 (100,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
P 90,000
**Deposit in transit, beg
Add: Deposit made by the co. this month
Book Debits P1,420,000
Less: Unrecorded collection 90,000 Customer’s
note recorded as cash receipts 200,000
Total 1.130.000
P1,220,000
Less: Deposits acknowledged by the bank
Bank Credits P1,000,000
Less: Erroneous bank charge 20.000
Outstanding checks, end 980,000
P 240,000
Question No. 5
Adjusted balances:
Account No. 143 P1,020,000
Account No. 144 ( 420,000)
Total adjusted balances P 600.000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C
RCBC Account Book Bank
Unadjusted balance P 165,000 P 125,000
Credit memo for note collected 6,000
Bank service charge (1,000)
Deposit in transit 60,000
Outstanding checks (25,000+20,000) (45,000)
Unrecorded disbursement ( 30,000) -
Adjusted balance P 140.000 P 140.000
41
Question Nos. 2-3 Bank P
Equitable PCI Bank Book 93,000
Unadjusted bal. (squeeze] P 62,000
Chapter 8: Cash ( 28,000)
Credit memo for and
noteCash
coll. Equivalents 10,000
Bank service charge ( 2,000)
P1 50.000
Deposit in transit (15,000+20,000+50,000*) 85,000 and deposit in
*fund transfer No. 4 (Included both as unrecorded transfer transit)
Outstanding checks
Unrecorded transfer (30,000+50,000*) 80,000
Adjusted balance P 150.000
Question No. 4
Outstanding checks:
RCBC Account (25,000+20,000) P 45,000
Equitable PCI Bank 28,000
Total outstanding checks 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. B 5. B

Unadjusted bank statement balance - Dec. 31 *P5,000,000
Add: Deposit in transit Less: Outstanding checks 1,000,000
Adjusted cash in bank balance, December 31 600,000
Less: Credit memo December Add: Bank service P 5,400,000
charge December NSF check, December 200,000
Unadjusted book balance - December 31 10,000
*(3,000,000+9,000,000-7,000,000) 140,000
P 5.350.000
Question No. 2
Unadjusted bank receipts Deposit in transit-Nov.
30 November 30 December 31
Credit Memo - December 31 Unadjusted book P 9,000,000
receipts
(400,000)
1,000,000 (
200,000)
P9.400.000
42
Question No. 3
Unadjusted bank disbursements P7,000,000
Outstanding checks:
November 30 (900,000)
December 31 600,000
Bank service charge-Dec. 31 NSF (10,000) (
check-Dec. 31 Unadjusted book 140,000)
disbursements P6.550.000
Question No. 4
Currencies P 40,000
Coins 4,000
Check drawn payable to petty cash custodian Total 30,000
Petty cash fund P 74.000
Question No. 5
Cash in bank (See No. 1) P 5,400,000
Petty cash fund (See No. 4) 74,000
Cash on hand (1,725,000-1,600,000) Total 125,000
Cash and cash equivalents P5,599,000
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. C 5. C
PROBLEM 7-23 Proof of Cash 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 7,000
Less: Checks paid by the bank 75.000
Bank Debits P 113,000 82.000
Less: DM for this month
NSF checks (10,000+40,000) 50,000
Bank service charge 2,000
Error Correction 500
Outstanding checks, end
60,500
P 21,500
43
Question No 2
Unadjusted rec. per bank P 171,500
Deposit in transit:
Chapter 8: Cash
November 30and Cash Equivalents (11,000)
December 31 20,000
Error correction (500)
NSF check, no entry on the books when returned
and redeposited ( 40,000)
Adjusted balance P 140.000
Question No 3
Unadjusted disbursement, per bank P 113,000
Outstanding checks November 30
December 31 Error correction NSF check, (7,000)
no entry on the books on the returned and 21,500
redeposit Adjusted (500)
balance
( 40,000)
Question No 4 P 127,500
P 87.000
Unadjusted bank
bal Deposit in
transit November 20,000
30 December 31
Outstanding
checks November ( 21,500)
P126,000
30 December 31
Adjusted bal.
Question No 5
PROOF OF CASH
Unadjusted bank balance 69,000
Deposit in transit
November 30 11,000
December 31
Outstanding checks
November 30 (7,000)
December 31
Error correction
NSF check, no entry on the books on the
return and redeposit
Zero, adjusted bank and book balance on December 31 is the same.
44
Nov. 30 Receipts Disb. Dec
171,500 113,000 *127
(11,000)
*20,000 20
(7,000)
21,500 (21,
(500) (500)
(40,000) (40,000)
45
Adjusted bal. 73,000 140,000 87,000 126,000
* (69,000+171,500-113,000) **
(18,000+2,000)
Unadjusted book balance 66,000 113,800 85,000 94,800
Credit memo for note collected
November 30 8,800 (8,800)

December 31 35,000 35,000
Bank service charge November
30 (1,800) (1,800)
December 31 2,000 (2,000)
Adjusted bal. 73,000 140,000 87,000 126,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. A
PROBLEM 7-24 Computation of Cash Shortage
SOLUTION:
Question No. 1
Unadjusted bank bal. P 225,400
Less: Outstanding checks (8,434+4,300+
6,524+ 9,551.50+4,577+5,961) (39,347.50)
Add: Undeposited receipts 35,000
Adjusted bank balance P221,052.50
Question No. 2
Unadjusted book bal. P242,310.50
Credit memo for notes collection 30,000
Credit memo for int. 900
Balance (cash accountability) P273,21 0.50
Question No. 3
Adjusted bank bal. (Cash accounted) P221,052.50
Less: Cash in bank bal. (cash accountability) 273,210.50
Shortage (P52,1 58.00)
SUMMARY OF ANSWERS:
1. B 2. D 3. B
46
Question No. 1
Outstanding checks ( 11,500]
Undeposited collections 5,000
Adjusted bank balance P 35,900
Question No. 2
Unadjusted book bal. P 46,500
Credit memo proceeds clean draft 900
Debit memo for bank service charge ( 100]
Balance (cash accountability] P 47,300
Question No. 3
Adjusted bank bal. (Cash accounted] P 35,900
Cash in bank bal. (cash accountability] 47,300
Shortage as of June 30 (P11,400]
Question No. 4
Additional cash shortage from July 1-15
July collection per duplicate O.R. P 18,800
Less: collections in July that were deposited in July
Collection per duplicate slips
P 11,000
Less :Undeposited collection, June 30 5,000 6,000
Cash that should be on hand on July 15 P 12,800
Less: Actual cash on hand on July 15 4,800
Cash shortage from July 1-15 P 8,000
Question No. 5
Understatement of cash in bank per books (46,500-45,600] P 900
Overstatement of cash in bank per bank (44,000-42,400] 1,600
Understatement of outstanding checks (11,500-3600] 7,900
Overstatement of undeposited collections (5,100-5,000] 100
Non-recording of credit memo-proceeds of clean draft 900
Cash shortage as of June 30 P11.400
SUMMARY OF ANSWERS:
1. C 2. D 3. B 4. D 5. D
47
PROBLEM 7-26 Computation of Cash Shortage Question No. 1
Deposit in transit, unadjusted bal. P 350,500 100,000
Less: customer's Post-dated check P 250,500
Adjusted Deposit in transit
Question No. 2
P 493,500
Outstanding checks, unadjusted balance
( 29,500] (
Less: Unreleased check
74,420)
Company's post-dated check
P 389,580
Adjusted Outstanding checks
Question No. 3
Unadjusted bal. per bank
P 700,000 250,500
Add: Deposit in transit (No. 1]
(389,580] ( 60,000)
Less: Outstanding checks (No. 2]
P.500,920
Erroneous bank credit
Adjusted cash in bank bal.
Question No. 4
Unadjusted bal. per books
Add: Credit memo for note coll. P 587,000
30,000
Unreleased check
29,500
Company's post-dated check
74,420
Total
P 720,920 (100,000)
Less: Customer's post-dated check
P 620,920 500,920
Cash in bank per books bal.
fP120,0001
Less: Adjusted cash in bank balance
Cash shortage
Question No. 5
P587,000
Unadjusted bal. per books
500,920
Less: Adjusted cash in bank balance
P 86,080
Net adjustments
SUMMARY OF ANSWERS:
1. B 2. D 3. B 4. C 5. A

Question No. 1
Purchases (squeeze] P 81,160
Less: Merchandise inventory, end 23,480
Cost of Sales (80,752/140%) P 57.680
48
Purchases P 81,160
Less: Accounts payable, end 11.571
Total payment of Accounts payable P 69,589
Question No. 2
Sales on account P 80,752
Less: Accounts receivable, end 21,345
Collection to customers P 59,407
Question No. 3
Receipts:
Proceeds of issuance of stocks P 80,000
Collection from customers 59,407
Loan proceeds 28,000 P 167,407
Disbursements:
Payment of real property
P 50,000
Payment of furniture and equipment
(7,250-1,500) 5,750
Payment of AP 69,589
Payment of operating expenses 1 5,1 89 140,528
Cash accountability P 26,879
Question No. 4
Outstanding checks ( 463)
Undeposited collections 1,285
Adjusted cash in bank bal. P 7,404
Question No. 5
Adjusted cash in bank bal. P 7,404
Less Cash accountability 26,879
Cash shortage (P19,475)
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4. B 5. A
49
Chapter 10: Loans and Receivables
CHAPTER 10: LOANS AND RECEIVABLES
Note to professor:
Page Existing data: Replace to:
Net Selling price = Present value of Disregard (25,000 x 3.5493)
notes receivable (25,000 x 3.5493)
259
Illustration
The note is a non-interest bearing note The note is a non-interest bearing note
and the prevailing rate of interest for a and the prevailing rate of interest for a
note of this type is 16% and the principal note of this type is 14% and the
amount... principal amount.
269
Requirement No. 1
Add: Accrued interest 600,000 Add: Accrued interest 500,000
Carrying amount of receivable: Carrying amount of receivable:
5,600,000 5,500,000
Loan impairment - 12/31/2014 Loan impairment - 12/31/2014
2,594,800 2,494,800
270
Journal entries 12/31/14 Loan impairment 2,494,800
Loan impairment 2,594,800 Accrued interest 500,000
Accrued interest 600,000 Allowance for loan impairment
Allowance for loan impairment 1,994,800
1,994,800
286 Solution
Maturity Value = Principal + Interest =
P60,000+ (P600,000 x 10% x 90/360)
Maturity Value = Principal + Interest
= P600,000+ (P600,000 x 10% x
90/360)
288 Illustration
On July 1, 2015, Boy Co. discounted its On July 1,2015, Boy Co. discounted its
"own" P50,000, 1-year note at a bank, at "own" P500,000, 1-year note at a bank,
a discount rate of 12%, when the prime at a discount rate of 12.
rate is 10%.
PROBLEM 10-1 Trade and other receivables
Trade Trade and other Noncurrent
Receivables receivables Asset
1 277,000 277,000 -
2 150,000 150,000 -
3 - 10,000 -
4 - 30,000 -
5 - - 110,000
6 - 15,000 -
7 70,000 70,000 -
8 - 80,000 220,000
9 100,000 ___________ 100,000_____________
Adjusted bal. 597,000 1.C ____________ 732,000 2. C _________ 330,000
PROBLEM 10-2 Different Freight terms

Question No. 1
50
FOB Destination, freight prepaid
Invoice price of merchandise purchased 300,000
Less: Invoice price of merchandise returned _________ -
Net invoice price 300,000
Less: Purchase discount (300,000 x 2%) 6,000
Net Payment before freight 294,000
Less: Freight payment - FOB Destination, freight collect -
Add: Freight payment - FOB shipping point, freight prepaid _________ -
Total Net Cash payment 294,000
Question No. 2
FOB Destination, freight collect
Less: Freight payment - FOB Destination, freight collect 5,000
Add: Freight payment - FOB shipping point, freight prepaid _______________ -
Question No. 3
FOB Shipping point, freight prepaid
Add: Freight payment - FOB shipping point, freight prepaid ___________ 5,000
Question No. 4
FOB Shipping point, freight prepaid
51
Chapter
Add: 10: Loans
Freight and -Receivables
payment FOB shipping point, freight prepaid _______________ -
SUMMARY OF ANSWERS:
1. B 2. A 3. C 4. B
PROBLEM 10-3 Gross method and Net method

List price P 100,000
Less: Trade discounts
15%: (100,000 x 15%) 15,000
20%: (100,000 - 15,000) x 20% 17,000 32.000
Invoice price, gross of discount Less: Sales discount 68.0
(68,000 x 3%) 2,040
Invoice price, net of discount 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 The year-end balances of accounts

December 31, 2015 is as follows: Receivable are as follows:
From 2014 1,000,000 December 31, 2014 1,000,000
From 2015 1,200,000 December 31, 2015 1,200,000
2,200,000
CASE 1
Credit Sales Accounts written off Recoveries
2011 2,100,000 20,000 15,000
2012 1,850,000 40,000 20,000
2013 2,050,000 130,000 5,000
6,000,000 190,000 40,000
2014 2,000,000 22,000 20,000
8,000,000 212,000 60,000
2015 2,000,000 113,000 40,000
Question No.10,000,000
1 325,000 100,000
Percentage
Accounts written off minus Recoveries

Total credit sales
52
Total years from 2011 to 2015: 325,000 - 100,000

Percentage = -------------- 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
Allowance for Bad debts
Write off 113,000 400,000 Beg. Balance
Balance end (squeeze) 372,000 45,000 Bad debts exp
40,000 Recovery
485,000 485,000
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 BD exp Recoveries Write-off NetAB
2014 2,000,000 50,000 20,000 22,000 48,000
2015 2,000,000 50,000 40,000 113,000 (23,000)
Allowance for BD 25,000
CASE 3
Question No. 7
Percentage of bad _ ________ Accounts written off minus Recoveries
debts to AR Total credit sales
53
Total years from 2011 to 2014:
Percentage of bad _ __________________ 212,000 - 60,000 _________
debts to AR 8,000,000
Percentage of bad _ ________ Accounts written off minus Recoveries

debts to AR Total credit sales

Percentage of bad _ __________________ 325,000 - 100,000 ________
debts to AR 10,000,000
Question Nos. 8 and 9

Balance end Beg. Balance
(1,200,000x2.25%) Write 27,000 19.000 (1,000,000x1.90%)
off 113,000 81.000 Bad debts exp (squeeze)
40,000 Recovery
140,000 140,000
SUMMARY OF ANSWERS:
Case 1 Case 2 Case 3
1. D 4. A 7. D
2. C 5. A 8. C
3. A 6. A 9. C
PROBLEM 10-5 Aging Based on Outstanding Receivables Note to professor:
__________________________________________________
(P100,000 definitely collectible, (P100,000 definitely uncollectible,
balance is 90%) balance is 90%)
Question No. 1
Categories Balance Uncollectible
(No. of Days) Percent Amount
0-30 days 500,000 2% 10,000
31-60 days 600,000 3% 18,000
61-90 days 750,000 5% 37,500
over 91 days 300,000 10% 30,000
Totals 2,150,000 95,500
54
Balance end
(see above table) 95,500 40,000 Beg. balance
Write off 12,000 Recoveries
(23,000+100,000) 123,000 166,500 Bad debts exp (squeeze)
218,500 218,500
Question No. 2
Accounts receivable, end (see above table) 2,150,000
Less: Allowance for doubtful accounts, end _______ 95,500
Net Realizable Value 2,054,500
SUMMARY OF ANSWERS:
1. A 2. A
Question No. 2
PROBLEM 10-6 Aging Based On Days Past Due Allowance for Bad debts
Question No. 1end
Balance 49,200 20,000 Beg. balance
Overdue accounts % uncollectible Balance
29,200 Bad debts exp (squeeze)
Allowance
For less than 31 days 158,000
5.00% 158,000 300,000 15.0
From 31-60 days 6.00% 220,000 13,200
From 61-90 days 8.00% 150,000 12.0
From 91-120 days 15.00% 60,000 9,000
For over 121 days 20.00%
Required allowance for doubtful accounts 49,200
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
Less: Accumulated depreciation 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
55
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 100,000
Loss on sale 50,000
Machinery 500,000
\
12/31/2015 Cash 10,000

Interest income 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
Presentvalue ofprincipal (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
Gain on sale P1,053,966
Amortization table
Date Interest Interest Discount Carrying
Collections Income Amortization amount
01/01/2015 1,903,960
12/31/2015 200,000 228,475 28,475 1,932,435
12/31/2016 200,000 231,892 31,892 1,964,327
12/31/2017 200,000 235,704 35,672 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. A 5. C
56
PROBLEM 10-9 Interest-bearing Note with Unrealistic Interest Rate, Interest Is
Note to professor:
Choices for question No. 2
a. 100,000 c. 115,847 a. 200,000 c. 215,847
b. 114,104 d. 141,104 b. 229,054 d. 232,643
Payable Semi-Annually, One-Time Collection of Principal
Question No. 1 P 1,410,000

Present value of principal (2,000,000 x 0.7050)
Add: Present value of interest payments (2,000,000 491,730
1,901,730
x 5% x 4.9173)
Total present value / Selling price Less: Carrying
1,000,000
amount of machinery Cost
150,000 850,000
Less: Accumulated depreciation Gain on
P1.051.730
sale
Amortization table
Date Interest Interest Discount Carrying
Collections Income Amortization amount
01/01/2015 1,901,730
07/31/2015 100,000 114,104 14,104 1,915,834
12/31/2015 100,000 114,950 14,950 1,930,784
07/31/2016 100,000 115,847 15,815 1,946,599
12/31/2016 100,000 116,796 16,796 1,963,395
07/31/2017 100,000 117,804 17,804 1,981,198
12/31/2017 100,000 118,602 18,802 2,000,000
Question No. 2
Interest income up to 07/31/2015 114,104
Interest income up to 12/31/2015 114,950
Total interest income 229,054
Question No. 3
1,930,784. See amortization table above.
Question No.s 4 and 5

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. B 4. A 5. D
57
PROBLEM 10-10 Interest-bearing Note with Unrealistic Interest Rate, Uniform
Collection of Principal
Note to professor:
Problem 10-10
Principal is due in equal annual Principal is due in equal annual
payments, starting December 31, payments, starting December 31,
2017. 2015.
Question No. 1
Computation of present value of all payments:
Present value Interest Total
Principal collections Total PV
factor collections
0.8929 600,000 180,000 780,000 696,462
0.7972 600,000 120,000 720,000 573,984
0.7118 600,000 60,000 660,000 469,788
Total present value 1,740,234
1,740,234
Total present value / Selling price Less:
Carrying amount of machinery Cost 1,000,000
Gain on sale
P890.234
Amortization table
Date Interest Interest Amortizatio Principal Carrying
Collections Income n collections amount
01/01/15 1,740,234
12/31/15 180,000 208,828 28,828 600,000 1,169,062
12/31/16 120,000 140,287 20,287 600,000 589,350
12/31/17 60,000 70,651 10,651 600,000 -
Question No. 2
208,828. See amortization table above. Question No. 3

Question No. 4
600,000
Principal collections - 2016 Less:
20,287
Amortization - 2016 Current
579,713
portion -12/31/2015
58
Question No. 4
Carrying value - 12/31/2015 1,169,062
Less: Current portion - 12/31/2015 579,713
Non-current portion - 12/31/2015 589,350
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. A
PROBLEM 10-11 Non-interest-bearing Note with Unrealistic Interest Rate, Non-

Uniform Collection of Principal Question No. 1
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
Total present value / Selling price Less: 1,513,580

Carrying amount of machinery Cost
Less: Accumulated depreciation 1,000,000
Gain on sale 150,000 850.000
P663.580
Question Nos. 2 to 5 Amortization table

Date Interest Amortizatio Principal Carrying
income n Collections amount
1/1/15 1,513,580
12/31/15 181,630 181,630 1,000,000 695,210
12/31/16 83,425 83,425 600,000 178,635
12/31/17 21,382 21,365 200,000 -
Question No. 2
181,630. See amortization table above.
Question No. 3
Question No. 4
Principal collections - 2016 Less: 600,000
Amortization - 2016 Current 83,425
portion -12/31/2015 516,575
59
Question No. 4
Carrying value - 12/31/2015 695,210
Less: Current portion - 12/31/2015 516,575
Non-current portion - 12/31/2015 178,635
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. D
PROBLEM 10-12 Noninterest-bearing Note, One-Time Collection of

Principal
SOLUTION:
Question No. 1
Total present value (1,800,000x0.7118) 1,281,240
Cost 1,000,000
Less: Accumulated depreciation 150,000 850.000
Gain on sale P431.240
Amortization table
Date Interest Income Amortization Carrying amount
01/01/15 1,281,240
12/31/15 153,749 153,749 1,434,989
12/31/16 172,199 172,199 1,607,187
12/31/17 192,812 192,812 1,800,000
Question No. 2
Question No. 3
Question No. 4 and 5

The total amount of 1,434,989 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. B 5. A
PROBLEM 10-13 Computation of Annual Payment or Collection

CASE 1: Based on the original data
Requirement No. 1
. , „ Present value of the notes
Annual collection = -------------- - ------ -- — ---- -- —— ---------- —z— ----------- re
present value of ordinary annuity for 3 periods
1,500,000
Annual collection = ----------------------------------------- „ ----------------------------
2.4018
60
= P624.532
Chapter 10: Loans
and Receivables Annual collection

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% = P113.088
PROBLEM 10-14 Loan Receivable

SOLUTION:
Loan receivable (principal amount) P4,000,000
Less: Unearned interest income
Origination fee received 342,100
Less: Direct origination cost ( 150,000) 192,100
Carrying amount - January 1,2015 P3.807.900
Interest income for 2015 (12% x 3,807,900) P456,948

Interest received for 2015 (10% x 4,000,000) 400,000
Amortization of unearned interest income P 56,948
Loan receivable P 4,000,000
Unearned interest income - December 31, 2015
(192,100 - 56,948) ( 135,152)
Carrying amount - December 31, 2015 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
61
Computation of present value of all payments: PV Total PV
factor Total collections 1,454,560
0.9091 1,600,000 2,644,480
0.8264 3,200,000 3,606,240
0.7513 4,800,000 ___ 7,705,280
Total present value of the notes ___
Interest Carrying
Date Collections Income Amortization amount
12/31/2014 7,705,280
12/31/2015 1,600,000 770,528 829,472 6,875,808
12/31/2016 3,200,000 687,581 2,512,419 4,363,389
12/31/2017 4,800,000 436,339 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

PV factor Principal Total collections Total PV
0.9091 160,000 160,000 145,456
0.8264 320,000 320,000 264,448
0.7513 480,000 480,000 360,624
Total present value of the notes 770,528
Carrying
Date Collections Int. Income Amortization amount
12/31/2014 770,528
12/31/2015 160,000 77,053 82,947 687,581
12/31/2016 320,000 68,758 251,242 436,339
12/31/2017 480,000 43,661 436,339 -
SUMMARY OF ANSWERS:
1. A 2. B 3. B
62
PROBLEM 10-17 Reversal of Impairment Loss
Question No. 1
Present value of expected cash flows P 654,552
vs. Would have been present value if there was no impairment 600,000
Lower 600,000
Less: Actual amortized cost Gain on reversal of impairment loss 396,681
P 203,319
Question No. 2
Interest income (600,000 x 10%) P 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%)
P 900,000 (
Cash received on December 1
90,000)
Suggested answer: B P810.000
PROBLEM 10-19 Assignment of Receivable Entries to record transactions
Date Accounts Debit Credit
10/1/2015 Cash 395,000
Finance charge expense 5,000
Notes payable 400,000
12/31/2015 Cash 300,000

Accounts receivable 300,000
Interest expense (400,000 x 12% x 3/12) 12,000

Cash 312,000
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)
Cash received on December 1 P142.500
63
Question No. 2
Notes payable P150,000
Less: Principal payment
Remittance 95,000
Less: Interest (150,000 x 12% x 3/12) ( 1,500) 93,500
Notes payable - December 31 P 56.500
Question No. 3
Accounts receivable - assigned (200,000 - 100,000) P 100,000
Less: Notes payable Equity in assigned account ( 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 Debit Credit
One Cash (400,000x90%) 360,000
Receivable from factor
(25,000- [5% x 400,000]) 5,000
Loss on sale ofreceivables (squeeze) 35,000
Two 360,000
Cash (400,000x90%)
Receivable from factor
(25,000- [4% x 400,000]) 9,000
Loss on sale ofreceivables (squeeze) 34,000
Estimated recourse liability 3,000
SUMMARY OF ANSWERS:
1
.
PROBLEM 10-22 Factoring
SOLUTION: B
Sales price
Less: Carrying amount of accounts receivable (300,000 -
2
Loss on factoring
.
C
P 265,000 12,500) ( 287,500)

P 22,500
64
Suggested answer: B
65
PROBLEM 10-23 Notes Receivable Discounting and Notes Receivable

Dishonored
CASE NO. 1
Question No. 1 Principal
Add: Interest over full credit period (600,000 x 9% x 90/360) P 600,000.00
Maturity value 13,500.00
Less: Discount (613,500 x 12% x 65/360) 613,500.00
Net proceeds from discounting 13,292.50
P 600,207.50
Question No. 2
Net proceeds from discounting P 600,207.50
Less: Carrying amount on date of discounting
Principal 600,000.00
Add: Interest (600,000 x 9% x 25/360) 3,750.00 603.750.00
Loss on notes receivable discounting (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 P 613,500
Add: Protest fee and other bank charges 5,000 Cash
received on December 1 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 P 613,500
Add: Protest fee and other bank charges 5,000 Cash
received on December 1 P618.500
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. C 5. A 6. C
PROBLEM 10-24 Discounting "Own” Note

Question No. 1 P 250,000 (
Note payable 30,000)
Less: Discount on note payable (250,000 x 12%) P 220,000
Carrying amount - Date of issuance
Effective interest rate = Discount/Net proceeds =
30,000/220,000 61
= 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
Accounts written off 164,000 212,000 Beg. Balance

Balance end (squeeze) 200,000 1 152,000 DA expense (7.6M x 2%)
Total 364,000 364,000
Question No. 2
Age Group Amount Percent Uncollectible Allowance
0 - 60 days P 1,650,000 2% 33,000
61 - 90 days 440,000 10% 44,000
91 - 120 days 100,000 30% 30,000
Over 120 days 256,000 40% 102,400
Total P 2,446,000 209,400
Question No. 3
164,000
Accounts written off 1 212,000 Beg. Balance
Balance end 209,400 | 161,400 DA expense (squeeze)
Total 373,400 373,400
Question No. 4
Accounts receivable, December 31, 2013 2,446,000
Less Allowance for doubtful accounts, December 31, 2013 209,400
Net realizable value 2,236,600
Question No. 5
Beg. Balance 2,500,000 2,446,000 Balance end
Sales 7,600,000 164,000 Write-off
7,490,000 Collections (squeeze)
62
Total 10,100,000 10,100,000
SUMMARY OF ANSWERS:
1. A 2. C 3. D 4. B 5. D
PROBLEM 10-26 Question
No. 1
Credit Sales Accounts written off Recoveries
2012 2,220,000 52,000 4,300
2013 2,450,000 59,000 7,500
2014 2,930,000 60,000 7,200
7,600,000 171,000 19,000

Percentage = - Total credit sales " _
n „ _________________________________ 171,000 -19,000 __________
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 P 62,000
off) Less: Correct doubtful account expense (see No. 2) ( 60,000)
Overstatement in doubtful account expenses P 2.000
Question No. 4
Sales on account 3,000,000 62,000 Write-off
2,710,400 Collections excluding advance
from customers
Total 3,418,000 3,418,000
Question No. 5
Balance end 21,600 1 60,000 Doubtful accounts expense
8,400 Recoveries
Total 83,600
1 83,600
SUMMARY OF ANSWERS:
63
1. A 2. A 3. B 4. B 5. A
PROBLEM 10-27
Question No.
Chapter 10: 1 and Receivables
Loans
Year Credit sales Write-off Recoveries
2011 3,000,000 30,000 -
2012 4,500,000 76,000 5,400
2013 5,900,000 104,000 5,000
2014 6,600,000 130,000 9,600
Total 20,000,000 340,000 20,000
2015 8,100,000 125,550 10,000
Total 28,100,000 465,550 30,000
Percentage Accounts written off minus Recoveries

Total credit sales

Percentage 340,000 - 20,000
=
2014 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
465,550 - 30,000
Total years from 2011
to 2015 Percentage 28,100,000
=
2015
Percentage = 0.0155 or
1.55%

(166,000-40,450)
Balance end (4,000,000 + 64,177 139,727 Doubtful account
100,000+40,450)x1.55% expense(squeeze)
10,000 Recoveries
Total 189,727 189,727
64
Question No. 5
Accounts receivable (4,000,000+100,000+40,450) P 4,140,450
Less: Allowance for doubtful accounts ( 64,177)
Net realizable value P4.076.273
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. A
PROBLEM 10-28
Accounts Allow Mdse. Net Cost of
Receivable for DA Inventory Sales Sales
Unadjusted balances 300,000 3,000 400,000 1,000,000 800,000
2) Sale return (30,000) (30,000)
Cost of return
Merchandise
(30,000 x 80%) 24,000 (24,000)
3)Sales FOB
shipping point
not recorded as
Sale 40,000 40,000
Cost of mdse sold (32,000) 32,000
(40,000 x 80%)
4) Goods shipped
FOB
Destination
recorded as sale (50,000) (50,000)
Cost of goods
(50,000 x 80%) 40,000 (40,000)
6) Doubtful accts exp (12,000)
Adjusted bal. 260,000 15,000 432,000 960,000 792,000
Question No. 5
Accounts receivable P 260,000
Less: Allowance for doubtful accounts ( 15,000)
Net realizable value P245,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. B 5. C
PROBLEM 10-29
Question No. 1
Unadjusted accounts receivable, Dec.1 (squeeze) P 21,800
Add: Adjusted net sales 255,000
Total 276,800
Less: Collections, net of discounts 156,800
Estimated uncollectible accounts charged to AR in Dec. 30,000
Unadjusted accounts receivable, Dec. 31 P 90,000
65
Subsidiary ledger balance, Dec. 1 P 59,000
Less: AR controlling account, Dec. 1 (see above) 21,800
Add: Estimated uncollectible account
charged to AR in Dec. 6,000 27,800
Customers' credit balance P31.200
Question No. 2
Collection, net of discount P 156,800
Divide by: (100%-2%) 98%
Total credit to AR for collection P160.000
Question No. 3
Customer credit balance, Dec. 1 P 31,200
Less: sale to customer with credit balance 10,000
Customer Credit balance, Dec. 31 P 21.200
Question No. 4
Unadjusted Sales, balance P 260,000
b) Sales, FOB shipping pt., not yet recorded 10,000
c) Sales, FOB destination ( 15,000)
Adjusted Sales balance P 255.000
Question No. 5
Subsidiary ledger, balance, 12/1 P 59,000
Add: Adjusted Sales in December 255,000
Freight prepaid by the company 1,000
Total P 315,000
Less: total credit to AR for coll. 160,000
Adjusted accounts receivable in Dec. P 155.000
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4. A 5. B
PROBLEM 10-30
Note to professor:
S Replace JOSHIA to Joanna in Item I.
S Remove “P” sign in Question No. 5
Accounts Merchandise Net Sales Cost of
receivable Inventory Sales
Unadjusted bal. 200,000 300,000
1,000,000 600,000
1 (14,800)
3 (47,400) 32,600 (47,400) (32,600)
4 (30,000) (90,000)
5 (8,000) (8,000)
66
6 (36,000) 24,000 (36,000) (24,000)
7 (1,200) ___________________ (1,200) ____________
62,600 356,600 817,400 543,400
Question No. 5
Original bill (P200 x 100) P 20,000
Divided by: Selling price per unit 200
Number of units sold ____100
Question No. 6
Item Accounts Debit Credit
B Accounts payable 14,800
C 32,400
Accounts receivable - D
Accounts receivable - C 32,400
E 47,400
Sales
Merchandise inventory 32,600

Cost of sales 32,600
F 90,000
Sales
Accounts receivable 30.000
Customers’ deposit on orders 60.000
H *8,000
Sales
Accounts receivable
8,000
I 36,000
Sales
24,000
Cost of sales 24,000
J Sales returns and allowances 1,200 1,200
Accounts receivable
Computation of overstatement of sales for item H
Original bill (P200x 100) P 20,000
Per audit: (P120 x 100) 12,000
Overstatement P 8,000
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. B 5. B
67
PROBLEM 10-31 Question Nos. 1 to 3
Total 0-31 days 31-60 61-90 91-120 Over 120
Rose P 87,950 35,000 52,950
Gerry 52,300 30,000 22,300
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 22,300
0.01 0.015 0.04 0.10 0.60
1,160 1,662 2,980 7,350 13,380
Question No. 4
Allowance for doubtful accounts, end:
(P1,160 + P1,662 + P2,980 + P7,350 + P13,380) P 26,532
Question No. 5
15,000
Balance end 26,532 | 19,082 Doubtful accounts expense
Total 41,532 41,532

SUMMARY OF ANSWERS:
1. A 2. C 3. C 4. C 5. C
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 10,000 10,000
,000 2,220
52,780
5 55 7,500
,000 116,500 27,220 68,280 11,000 10,000
6 7,
500 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) P 7,051.70 Less:
Allowance for doubtful accounts, beginning 5,000.00
Doubtful accounts expense P 2,051.70
68
Question
Chapter 10:Nos. 4 and
Loans and5Receivables
Interest Accrued interest
Interest income income income
(120,000 X 6% X 2/12) P 1,200 P - 500
(100,000 X 6% X 1/12) 500 P 500
Interest income P 1,700
SUMMARY OF ANSWERS:
1. D 2. C 3. B 4. D 5. A
PROBLEM 10-33
Question No. 1
Amount Percent Allowance
Days outstanding Uncollectible
0 - 60 days P 960,000 2% 19,200
61 - 120 days 720,000 4% 28,800
Over 120 days 1,000,000 6% 60,000
Total P 2,680,000 108,000
Question No. 2
Balance end 108,000 48,000 Recovery
124,000 Doubtful accounts expense
(squeeze)
Total 292,000 292,000
Question No. 3
Unadjusted balance 144,000 48,000 Recovery
160,000 Doubtful accounts expense
(squeeze)
Total 328,000 328,000
Question No. 4
Reported Bad debts expense (see No. 3) P 160,000
Divided by: Bad debts rate 2%
Net credit sales 8,000,000
Add: Sales return 100,000
Unadjusted accounts receivable, Dec. 31 P 8,100,000
69
Accounts receivable
Beg. Balance 2,000,000 2,680,000 Balance end
Sales 8,100,000 184,000 Write-off
Recoveries 48,000 100,000 Sales return
7,184,000 Collections including
recoveries
Total 3,418,000 3,418,000

Question No. 5
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. B 5. C
PROBLEM 10-34 SOLUTION:

Question No. 1
Principal 4,000,000
Origination fees received Direct (342,100)
origination cost incurred Initial 150,020
Carrying amount of the loan 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
Presentvalue of Int. (4M x 10% x 2.4018) 960,720
Present value of Loan Receivable 3,807,920
Interest Carrying
01/01/2015 3,807,920
31/12/2015 400,000 456,950 56,950 3,864,870
31/12/2016 400,000 463,784 63,784 3,928,655
31/12/2017 400,000 471,439 71,346 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. A 5. A PROBLEM 10-35
70
Question
ChapterNo.
10: 1
Loans and Receivables
Principal 4,000,000
Origination fees received (282,100)
Direct origination cost incurred 39,020
Initial Carrying amount of the loan 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
Interest Carrying
01/01/2014 3,756,920
31/12/2014 400,000 450,830 50,830 3,807,750
31/12/2015 400,000 456,930 56,930 3,864,680
31/12/2016 400,000 463,762 63,762 3,928,442
Question No. 4
Carrying Amount (see above amortization table) 3,864,680 Less:
*Present value of expected cash flows 3,201,620
Loan Impairment 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
Interest Carrying
Date Collections Income Amortization value
12/31/2015 3.201,620
12/31/2016 1,800,000 384,194 1,415,806 1,785,814
12/31/2017 2,000,000 214,298 1,785,814 -
SUMMARY OF ANSWERS:
1. B 2. C 3. B 4. B 5. B
Nos. 1 and 3
Carrying amount of the loan, December 31, 2015 8,277,606
Less Carrying amount of the loan, December 31, 2016 8,145,367
Amortization in 2016 132,239
Less Interest collection in 2016 960,000
Interest income in 2015 (3) 827,761
Divide by Carrying amount of the loan, 12/31/2015 8,277,606
Effective interest rate (1) 10%
71
Question
ChapterNo.
10: 2
Carrying amount of the loan, January 1,2015 8,397,824
Multiply by: Effective interest rate _____10%
Interest income in 2015 839,782
Question No. 3
Carrying amount of the loan, 12/31/2015 8,277,606
Multiply by: Effective interest rate _____10%
Interest income in 2015 827,761
Question No. 4
Carrying amount of the loan, December 31, 2015 8,277,606
Add: Interest collection (8M x 12%) 960,000
Total 9,237,606
Divide by: 100% plus effective rate _____1.10
Question No. 5
Direct origination fees received 100,000
Principal 8,000,000
Interest Carrying
01/01/2015 8,397,824
12/31/2015 960,000 839,782 120,218 8,277,606
12/31/2016 960,000 827,761 132,239 8,145,367
12/31/2017 960,000 814,537 145,367 8,000,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. D 5. D
72
PROBLEM
Chapter 10:10-37
Question No. 1
Annual Cash PV
Dec. 31,2014 P1,750,000 0.9091 P 1,590,925

Dec. 31,2015 2,000,000 0.8264 1,652,800
Dec. 31,2016 1,750,000 0.7513 1,314,775
Total P 4,558,500
Question No. 2
Carrying amount of the loan P 5,500,000
Less: Present value of the 4,558,500
loan Impairment loss P 941,500
Date flows factor Amount
Interest Reduction to Carrying
Date Payment Income Principal amount
12/31/2013 P4,558,500
12/31/2014 P1,750,000 P455,850 P1,294,150 3,264,350
12/31/2015 2,000,000 326,435 1,673,565 1,590,785
12/31/2016 1,750,000 159,079 1,590,785 -
SUMMARY OF ANSWERS:
1. AorC 2. A 3. B 4. A 5. C
PROBLEM 10-38
SOLUTION:
Question No. 1
Age ofAccts Balance %uncollectible Allowance
1-10 days 960,000 1% 9,600
11-30 days 270,000 2.5% 6,750
Past due 31-60 120,000 5% 6,000
Past due 61-120 75,000 20% 15,000
Past due 121-180 45,000 35% 15,750
Past due over 180 days 30,000 80% 24,000
Allowance for BD 77,100
292,500
Unadjusted balance 54,800 | 320,00 DA expense (8M x 4%)
Total 347,300 347,300
73
Question No.Loans
74
77,100
Chapter 10:
Allowance forLoans and Receivables
doubtful accounts, 54,800
adjusted Allowance for doubtful 22,300
accounts, unadjusted Credit to
Allowance for BD
4,000,000
11,520
(300,000)
Principal
3,711,520
Direct origination cost incurred
Origination fees received Carrying amount, Jan. 1, 2015
Amortization table at 12% Effective Rate
Interest Carrying
01/01/2015 3,711,520
12/31/2015 400,000 445,382 45,382 3,756,902
12/31/2016 400,000 450,828 50,828 3,807,731
12/31/2017 400,000 456,928 56,928 3,864,658
12/31/2018 400,000 463,759 63,759 3,928,417
12/31/2019 400,000 471,410 71,583 4,000,000
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. D 5. A

Principal 4,000,000
Direct origination fees received (300,000)
Initial carrying amount 3,711,520
Interest Carrying
01/01/2013 3,711,520
12/31/2013 400,000 445,382 45,382 3,756,902
12/31/2014 400,000 450,828 50,828 3,807,731
12/31/2015 400,000 456,928 56,928 3,864,658
12/31/2016 400,000 463,759 63,759 3,928,417
12/31/2017 400,000 471,410 71,583 4,000,000
75
Question No.
Loans
Carrying amount of loan 3,807,731
Less: Present value of expected cash flows 12/31/2015
(1,750,000 x .8929) 1,562,575
12/31/2017 (1,750,000x.7118) 1,245,650 2,808,225
Impairment loss ___ 999,506
Question No. 5
Interest Carrying
12/31/2014 2,808,225
12/31/2015 1,750,000 336,987 1413,013 1,395,212
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. C 5. B

Classification Estimated
Balance
1-60 days 61-120 days 121-180 days 181-360 days Amount
Percentage
More than one year Totals
P 1,000,000 1% P 10,000
400.000 5% 20,000
300.000 10% 30.000
200.0 25% 50.000
60,000 80% 48.000
P 1,960,000 P 158.000
Question No. 2
Accounts receivable, adjusted (see no. 1) P 1,960,000
Less: Allowance for doubtful accounts, end (see no. 1) 158,000
Net realizable value P1.802.000
Question No. 3
Doubtful accounts per books (9,000,000 x 2%) P 180,000
Less: *Adjusted doubtful accounts expense 188,000
Understatement of doubtful accounts (P 8,000) *Adjusted
doubtful account expense

Write off (100,000+40,000) 140.000 90,000 Beg. Balance
Balance end (required) 158.000 20,00 Recoveries
188,000 Doubtful account expense
Total 298,000 298,000
76
Question
ChapterNo.
10: 4
Total carrying value P3,000,000
Less: **Present value of the loan 2,790,000
Impairment loss P 210.000
Computation of present value
Annual Cash flow PV factor Total
P1,000,000 1.00 P 1,000,000
1,000,000 0.93 930,000
1,000,000 0.86 860,000
Total Present value of the loan P 2,790,000
Question No. 5
Interest Amortizatio Carrying
Date Collections Income n amount
01/01/2015 2,790,000
12/31/2015 1,000,000 1,000,000 1,790,000
12/31/2016 1,000,000 143,200 856,800 933,200
SUMMARY OF ANSWERS:
1. A 2. B 3. D 4. B 5. B
PROBLEM 10-41
Question No. 1
Accounts receivable factored P 400,000
Less: Service charge (400,000 x 5%) 20,000
Receivable from factor (400,000 x 20%) 80,000 100,000
Customers' credit balance P300,000
Question No. 2
Principal P 300,000
Add: Interest over full credit period (300,000 x 12% x 6/12) 18,000
Maturity value 318,000
Less: Discount (318,000 x 12% x 3/12) 11,925
Net proceeds from discounting P 306,075
Question No. 3
Maturity value of the notes (see item in No. 2) 318,000
Add: Protest fee 12,000
Total cash paid/Amount to be debited to AR P 330,000
Question No. 4
Note payable (80% x P600,000) 480,000
Less: Service fee (5% x P600,00) 30,000
Cash received P 450,000
77
Question No.
Chapter 10: 5
Total Cash paid (see No. 3) 330,000
Add: Interest income (P330,000 x 12% x 2/12) ____ 6,600
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000) P 700,000
Add: Accounts receivable assigned 600,000
Total 1,300,000
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%) 65,000
Net realizable value P1,235,000
SUMMARY OF ANSWERS:
1. B 2. C 3. A 4.
B 5. D 6. D
PROBLEM 10-42
Note to professor:
T-Account of Allowance for bad debts:
Question
Beg. No. 1
Bal-01/01/2014 Beg. Bal-01/01/2015
Accounts receivable, unadjusted
bal
Cash received P 336,600
Per subsidiary ledger P1,660,000
Note receivable included in the AR (200,000)
Factored Accounts receivable (160,000)
Sales FOB shipping point 100,000
Adjusted AR balance P1.400.000
Question No. 2
eg. P 100,000
00,000+ P100,000)x1%
151,000
Allowance for doubtful accts, b Add: Doubtful accounts (P15,0I
P 251,000
Total
28,000
Less: Accounts written off
P 223,000
Allowance for doubtful accts,
nd
e
Question No. 3
Unadjusted Net Sales Add: P15,000,000
Sales, FOB shipping point 100,000
Total Sales Multiply by: rate P 15,100,000
Doubtful accounts _______ 1%
P __ 151,000
Question No. 4
No effect. The audit
adjustments did not result to any changes to inventory account.
78
Question No.
Loans
Sales, FOB shipping point
P 100.000
SUMMARY OF ANSWERS:
1. D 2. A 3. D 4. D 5. A

Nos. 1 to 3
60 days and 61 to 90 Over 90
Total below days days
Unadjusted Balance,
12/31/2015 1,450,000 800,000 400,000 250,000
Adjustments:
Write Off (50,000) (63,000)
Failure to record Sales
Return (40,000) (36,000)
Failure to record
Employee Discount (4,000) (3,600)
Consignment (45,000) (54,000)
Freight collect (3,800) (4,500)
Adjusted balance,
12/31/2015 1,307,200 701,900 400,000 187,000
Percentage of Uncollectibility 2% 3% 6%
Required allowance,
12/31/2015 37,258 14,038 12,000 11,220
Question No. 4
Write off 63,000
Balance end (required) 37,258 50.000 Beg. Balance
45.000 Recoveries
4,134 Adjustment to Doubtful
account expense (squeeze)
Total 100,258 100,258
Allowance for doubtful accounts 50,000
1
40,000
2 Sales return
3 55,000
Claim from insurance
4 Sales discount 4,000

79
5
ChapterSales
10: Loans and Receivables 45,000
6 Delivery expense 3,800
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. C
Adjusting entries for Accounts receivable
PROBLEM 10-44
1 Accounts receivable 20,000
Note to
professor: Existing data: Change to:
KayaSales
Co. incurred
discount and paid P11,520 of Kaya Co. incurred and paid P11,520
2 16,000
Accounts receivable
direct origination cost was debited to of direct origination cost was debited
16,000
direct
3 origination income. Kaya Co. to unearned interest income. Kaya
Accounts receivable
charged P300,000 120,000
nonrefundable Co. charged P300,000 nonrefundable
Allowance for doubtful accounts
origination fees which was credited to origination fees which 120,000
was credited
4
direct origination income. 30,000
to unearned interest income.
Accounts receivable
Miscellaneous income
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
Balance end
Beg. Balance 220,000 2,720,000
(20,000+200,000)
Sales 4,000,000 30,00 Recoveries
Recoveries 30,000 *1,500,000 Collections, gross of
discount
Total 4,250,000 4,250,000
80
Collections from customers
Chapter 10: Loans excluding recoveries
and Receivables
Collections without discount 700,000
Add: Collections with discount 784,000
Cash discount availed (784,000/98% x 2%) 16,000
Total collections excluding recoveries P 1,500,000
20,000 Beg. Balance
Balance end 170,000 30,000 Recoveries
Doubtful account expense
120,000
Total 170,000 170,000

Accounts receivable 2,720,000
Less: Allowance for bad debts ____ 170,000
Net realizable value P 2,550,000
Question Nos. 2,4 and 5
Adjusting entries for Loans receivable
Loan Receivable 400,000
1 Interest income
400,000
Unearned interest income 45,382
2 Interest income
45,382
Principal 4,000,000
Direct origination fees received (300,000)
Initial carrying amount 3,711,520
Interest Carrying
01/01/2015 3,711,520
12/31/2015 400,000 445,382 45,382 3,756,902
12/31/2016 400,000 450,828 50,828 3,807,731
12/31/2017 400,000 456,928 56,928 3,864,658
12/31/2018 400,000 463,759 63,759 3,928,417
12/31/2019 400,000 471,410 71,583 4,000,000
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. D 5. A
81
PROBLEM 10-45
Question No. 1
Nonrecording of gain on sale 180,360
Nonrecording of interest income
NR from sale of Machinery 57,643
NR from sale of plant (3,000,000 x 12% x 9/12) 270,000
Understatement of Ret. Earnings on 12/31/2015 508,003
NR sale of machinery:
Downpayment
400,000
Add: Present value of the note (200,000x2.4018*) 480.360
Total Selling Price Less: Book value Cost
880.360
Less: Accumulated depreciation Gain that
should have been recognized *PV of ordinary 1,600,000
annuity 900,000 700,000
Amortization table 1 180.360
Interest Reduction to Carrying
Date Collections
Income principal amount
01/01/2014 480,360
12/31/2014 200,000 57,643 142,357 338,003
12/31/2015 200,000 40,560 159,440 178,564
12/31/2016 200,000 21,437 178,563 -
Question No. 2
Interest Income:
NR from sale of machinery 40,560
NR from sale of plant
(3M x 12% x 3/12) 90,000
(2M x 12% x 9/12) 180,000
NR from sale of equipment 25,613
Total Int. Income 336,173
Amortization table 2
Interest Unearned Interest Carrying
Date Income Income amount
04/01/2015 158,500 341,500
12/31/2015 25,613 132,888 367,113
Question No. 3
NR from sale of machinery (see amortization table 1) 178,564
NR from sale of plant 1,000,000
Total current portion 1,178,564
82
Question
ChapterNo.
10: 4
NR from sale of plant 1,000,000
NR from sale of equipment (see amortization table 2) 367,113
Total noncurrent portion 1,367,113
Question No. 5
Nonrecording of loss 158,500
Overstatement of Int. income
Per books 360,000
Per audit 336,173 23,827
Total overstatement of net income in 2015 182,327
NR sale of equipment:
Downpayment 700,000
Add: Present value of the note(500,000x0.6830*) 341,500
Total Selling Price 1,041,500
Less: Book value
Cost 2,000,000
Less: Accumulated depreciation 800,000 1,200,000
Loss that should have been recognized (158,500)
*PV of 1
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. C 5. B
83
CHAPTER 12: INVENTORIES
Chapter 12: Inventories
Note to professor:
358 Requirement No. 4 T-Account Beginning
balance - 90,000 Change 90,000 to 190,000
359 SOLUTION:
S Items counted in S Items counted in the warehouse
the (bodega)
warehouse (bodega) (P4,000,000 - P32,000 -
(P4,000,000 - P32,000) P80,000) P3,888,000
P3,968,000 S Total P4,636,000
373 S Total P4,716,000 Notes:
Notes: 1. The invoice price is computed by deducting the
1. The invoice price is computed by deducting the trade discount of 20 and 10.
trade discount of 20 and 10. List Price P 150,000
List Price P 150,000 Less: Trade 30,000
Less: Trade discount 30,000 discount - 20%
- 20% Net 120,000
Net 120,000 Less: Trade
Less: Trade discount 1.200 discount -10% 12,000
-10% Invoice price P 108,000
Invoice price P 108,000 Note that the total trade discount of
Note that the total trade discount of P42,000 is not recorded in the
P31.200 is not recorded in the books. books.
2. . 2. .
3. . 3. .
4. The cash to be paid under the net method is 4. The cash to be paid under the net method is
computed as follows: computed as follows:
Purchases P 83,420 Purchases P 83,420
Less: Purchase 9,700 Less: Purchase 9,700
returns returns
Net purchases 76,000 Cash paid P 73,720
Less: Purchase 2.280
discount
Cash paid P 73,720
378 2. Moving Average Method

Cost of merchandise sold - Aug.
12 Unit Total Cost
Qty Cost
Unit Cost Total Cost Qty 200
200
379 Total inventory
Unit Total Cost
Unit Cost Total Cost Qty Qty Cost
1,900 1,900
390 Additional information No. 3
To record the purchase of the aviation To record the purchase of the aviation
fuel on March 23, 2016, being the lower fuel on March 23, 2016, being the
of the commitment lower of the
84
Chapter 12: Inventories commitment price of P3,000.
| price of P3,200.
PROBLEM 12-1 Cost of Purchase

Purchase price based on vendors' invoices 1,250,000
Brokerage commission paid to agents for arranging imports 50,000
Import duties 100,000
Freight and insurance on purchases 250,000
Other handling costs relating to imports 25,000
Total cost of purchase (B) P1,675,000
Note that the trade discount was already
deducted in arriving at the vendor’s invoice.
PROBLEM 12-2 Inventoriable Cost 350,000

Materials 30,000
Irrecoverable purchases taxes Total cost of P 380,000
inventory (B)
PROBLEM 12-3 Inventoriable Cost

180,000
Direct materials and labor
25.000
Variable production overhead
15.000
Factory administrative costs
20.000
Fixed production costs
P 240,000
Total Inventoriable cost (D)
PROBLEM 12-4 Items to be Included in the Inventory
1 Items in the warehouse during the count P1,090,000

Items out on consignment at another company's store 70,000
2
Items purchased FOB shipping point that are in transit at
4 December 31 500,000
5 Freight charges on goods purchased above 13,000
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
7 merchandise is
Items sold FOB destination that are in transit at December 200,000
10 31, at cost 75,000

14 Items currently being used for window display 100,000
15 Items on counter for sale 400,000
17 Items included in the count, damaged and unsalable (150,000)
Items in receiving dept., returned by customer, in good
18 condition (not included in the count) 50,000
19 Merchandise inventories out on approval, at cost
100,000
Finished special article goods, made to order (included in
20 the count) (78,000)
Total (A) P2.370.000
84
The following items would not be reported as inventory:
3 Cost of goods sold in the income statement 40,000
6 Not reported in the financial statements 300,000
8 Cost
Chapter 12: of goods sold in the income statement
Inventories 30,000
9 Cost of goods sold in the income statement 50,000
11 Advertising exp. In the income statement 10,000
13 Temporary investments in the current
assets section of the balance sheet 125,000
21 Office supplies in the current asset
section of the balance sheet 40,000

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

Unadjusted balance 1,800,000
Goods acquired in transit, FOB shipping point 100,000
Goods lost in transit 50,000
Adjusted Accounts
Payable (A) P1,950,000
50,000
The journal entry on item
2 would include the 50,000
following
Purchases / Inventory
Accounts Payable
To record the purchase on December 20.
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 50,000 other expense and not as cost of goods sold)
Inventory / Purchases 50,000
85
Chapter
And on 12:
theInventories
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 360,000
Freight by Desiree to Lomasoc 18,000
Total Inventoriable cost (D) P 378,000
Merchandise out on consignment at cost [150,000 x (100%-35%)] 97,500

60,000
Goods purchased in transit, FOB shipping pt.
40,000
Goods out on approval at cost
P197,500
Total Cost of inventory (D)
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?
Guide Sales Inventories
Unadjusted balances Questions 700,000 150,000
100 Yes, Yes, Yes - -
101 No, No, Yes - 2,000
102 No, Yes, Yes (1,800) 1,200
103 Yes, Yes, Yes - -
104 Yes, No, Yes 9,200 -
105 No, Yes, No (6,500) -
106 No, No, No - -
107 Yes, No, Yes 3,900 -
108 No, Yes, No (8,600) -
109 No, No, No
Adjusted balances 696,200 153,200
(A) (A)
SUMMARY OF ANSWERS: 1.
A 2. A
86
PROBLEM
Chapter 12-10 Gross method vs. Net method
12: Inventories
CASE NO 1: Gross method
01/02 Purchases (100,000 x [1-20%]) 80,000
Accounts payable 80,000
01/12 Accounts payable 80,000
Cash (80,000 x [1-98%]) 78,400
Purchase discount 1,600
Cash 80,000
CASE
2: Net method
NO
01/02 Purchases (100,000 x [1-20%]
x [1-2%]) 78,400
01/12
Cash (80,000 x [1-98%]) 78,400

Purchase discount lost 1,600
Cash 80,000
SUMMARY OF ANSWERS:
CASE NO. 1 CASE NO. 2
1. B 5. C
2. C 6. C
3. D 7. A
4. 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) 900
From second purchase (5 x 54) ______ 270
Total inventoriable cost (A) P 1,170
87
PROBLEM
Chapter 12-11 Cost Formulas - FIFO Method
12: Inventories
Cost of
Purchases Merchandise Sold Inventory
Date Qty Unit Total Qty Unit Total Qty Unit Total
Cost Cost Cost Cost Cost Cost
Feb 3 12 15.00 180
Feb 11 13 17.00 221.00 12 15.00 180
13 17.00 221
Feb 14 12 15.00 180 7 17.00 119
6 17.00 102
Feb 21 9 20 180.00 7 17.00 119
9 20.00 180
Feb 25 7 17.00 119 6 20.00 120
3 20.00 60
Cost of merchandise sold = P461 (180+102+119+60)

Ending Inventory = P120 (6 units @ P20) (C)
PROBLEM 12-13 Cost Formulas - Weighted Average Method

Weighted average _ ________ Total goods available for sale (in peso value)
unit cost Total goods available for sale (in units)
Weighted average _ ________ (10 x 61) + (25 x 63) + (30 x 64) + (15 x 73)
unitcost 10 + 25 + 30 + 15
Weighted average _ ________________________ 5,200________________
unit cost 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 Units Unit cost Total cost
Dec. 1 20,000 25 500,000
Dec.15 (17,500) 25 (437,500)
Balance 2,500 62,500
Dec. 26 10,000 40 400,000
Balance 12,500 462,500 (B)
88
Question
Inventory
PROBLEM Nos.
Moving average
end 1 and
12-15 Cost2 Formulas - Different Methods = P580.000 (A)
Cost of goods sold (280,000 + 257,250 -Units 12,250) Unit cost Total cost
= P525.000 (A)
April 1 balance 20,000 10 200,000
Apr. 2 Purchase 30,000 12 360,000
Balance 50,000 11 560,000
Apr. 4 Sale (25,000) 11 Unit cost(280,000)Total cost
Balance
April 1 balance Apr. 2 25,000 Units11 10 280,000200,000
Apr.410
Apr. Purchase Purchase 15,000 20,00014
(25,000 units sold) 12 210,000360,000
30,000
Balance From Apr. 1 40,000 (20,000)12 10 490,000(200,000)
Apr. 15from Apr. 2 Apr.
Balance Sales
10 From Apr. 2(21,000) (5,000)12 12(257,250)(60,000)
Apr. 15 (21,000 units sold)
Balance 19,000 25.00012 12 232,750300,000
Balance
Apr. 17from April 2 Balance
Sales returnPurchase 1,000 15.00012 14 12,250210,000
from
Apr.April
28 10 Apr. 17 Balance
Balance From Apr. 2 20,000 (21,000) 12 245,000(252,000)
Balance from April 2 Balance 12
Apr. 28 Purchase 4.0
20,000 17 335,000 48,000
from April 10 Apr. 28 Total 14 580,000210,000
Balance 40,000 15,00015
1.000 12 12,000
Sales return
5,000 12 60,000
15.000 14 210,000
Purchase 20.000 17 335,000
Balance 40,000 605,000
Question Nos. 3 and 4 FIFO
Inventory end = P605.000 (B)
Cost of goods sold (200,000 + 60,000 + 252,000 - 12,000) = P500.000 (B )

Weighted average
Weighted average _ _______ Total goods available for sale (in peso value)
unit cost Total goods available for sale (in units)
Weighted average 1,105,000

unit cost 85,000
89
Weighted
Chapter 12:average unit cost = P13/unit
Inventories
Inventory end (40,000 x 13) = P520.000 (C)

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

Net Realizable Value
Markers Pens Highlighters
120,000 94,400 150,000
Historical cost Selling price 180,000 180,000 180,000
Less: Estimated cost to complete 24,000 24,000 34,000
Net realizable value 156,000 156,000 146,000
Lower of cost-or-NRV 120,000 94,400 146,000
SUMMARY OF ANSWERS:
1. C 2. D 3. B
PROBLEM 12-17 Purchase Commitment

CASE
NO. 1
Accounts Debit Credit
Date
11/15 No entry
12/31 Loss on purchase commitment (20,000 x [25-20])
100,000
Estimated liability for purchase commitment 100,000
03/15 Purchases (25,000 x 25) 500.000
100.000 500.00
Estimated liability for purchase commitment
0
Accounts payable/Cash 100.00
Gain on purchase commitment 0
CASE
NO. 2
Accounts Debit Credit
Date
11/15 No entry
12/31 No entry
03/15 500,000
Purchases (25,000 x 25)
Accounts payable/Cash 500,000
90
PROBLEM
Chapter 12-18 Purchase Commitment
12: Inventories
3/31 No entry
12/31 Loss on purchase commitment (1,200,000-1,000,000)
200,000
04/30 1,200,000
Purchases 200,000
Estimated liability for purchase commitment
Accounts payable/Cash 1,200,000
Gain on purchase commitment 200,000
SUMMARY OF ANSWERS: 1. B 2. A

Gain on purchase commitment [50,000 x (55 - 40)] = P750.000 (A)
To record the actual purchase on March 31,2016:
Purchases (50,000 x 55) 2,750,000
Accounts payable/Cash 2,750,000
Gain on purchase commitment 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 (500x100) P 50,000
2017 (500x100) 50,000
Total P 100,000
Less: Estimated realizable value (1,000 x 20) 20,000
Probable loss from purchase commitment (C) 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
Chapter 12: Inventories 3,400,000
Less: Sales returns (30,000)
Net Sales excluding Sales discount 3,370,000
Multiply by: Cost ratio (1-30%) 70%
Cost of Goods sold 2,359,000
Inventory, January 1 650,000

Add: Net Purchases
Purchases 2,300,000
Add: Freight-in 60,000
Less: Purchase returns (80,000) 2,280,000
Total Goods available for sale 2,930,000
Less: Cost of goods sold (2,359,000)
Merchandise inventory that should be on hand 571,000
Less: Actual merchandise inventory on hand (420,000)
Cost of Missing inventory (A) 151,000
PROBLEM 12-22 Inventory Estimation - Gross Profit Rate Method

CASE NO. 1
Sales 1,552,000
Divide by: Sales ratio 125.00%
Cost of Sales 1,241,600

Purchases, January 1 through April 19 1,120,000
Total goods available for sale 1,280,000
Less: Cost of sales 1,241,600
Cost of Missing inventory P 38,400 (A)
CASE NO. 2
Sales 1,552,000
Multiply by: Cost ratio 75%
Cost of Sales 1,164,000

Purchases, January 1 through April 19 1,120,000
Less: Cost of sales 1,164,000
Cost of Missing inventory P 116,000 (D)
SUMMARY OF ANSWERS: 1.
A 2. D
92
PROBLEM 12-23 Inventory Estimation: LCM - Retail Method
Computation
Chapter 12: of cost ratio
Inventories
Cost Retail
Inventory at January 1 640.0 1,600,000
1,100,000 2,000,000
Purchases Freight-in Net
152.0 _ - -
markups Totals
800,000
Cost ratio (1,892,000 / 1,892,000 4,400,000
4.400.000) = 43%
Computation of Inventory end at retail
Balance up to markups (see above computation) 4,400,000
Less: Markdowns 400,000
Sales 1,600,000
Inventory end at retail P2,400,000
Multiply: Cost ratio 43%
Inventory end at cost (C) _E1i03.2i00Q
PROBLEM 12-24
Inventory Estimation: Cost Retail
Average Method - Retail 250,000 375,000
Method 1.325.0 1
Computation of cost ratio ,750,000
- 200,000
Inventory at January 1 _______ - (75,000)
Purchases Net markups 1.575.0 2
Net markdowns Totals ,250,000
Cost ratio
(1,575,000/2,250,000)
=ZQ%
Computation of Inventory end at retail Balance up to
markdowns (see above computation) 2.250.000
Less: Sales 1.500.000
Estimated normal shrinkage (1,500,000 x 5%) 75.000
Estimated normal shoplifting losses Inventory end 50.0 P
at retail 625,000
Computation of Cost of goods sold

Total goods available for sale at cost 1,575,000
Less: Inventory end at cost (625,000 x 70%) 437,500
Cost of Sales (B) 1,137,500
93
PROBLEM 12-25 Inventory Estimation: FIFO Method - Retail Method
Computation
Chapter 12: of
Inventories
cost ratio Cost Retail
292,500 400,000
Purchases Net - 7
markups Net 5,000
markdowns Totals - (
25,000)
Cost ratio (292,500
/ 450,000) = 65% 292,500 450,000
Computation of Inventory end at retail

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

2015 2016
Unadjusted balance 1,000,000 1,200,000
A. EI over, NI over (P129-P119) x 4,000 (40,000) 40,000
B. EI under, NI under 70,000 (70,000)
C. EI over, NI over (100,000) 100,000
D. EI under, NI under 140,000
Adjusted balances 930,000 1,410,000
(A) (C)
Question No. 5
Unadjusted net income (1,000,000+1,200,000) 2,200,000
Less: Adjusted net income (930,000+1,410,000) 2,340,000
Net adjustment to income-understated (140,000) (D)
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4. C 5. D
94
Direct materials inventory
DM purchased (squeeze) 70,000 72,000 Direct materials used
1 (B)
Total 79,000 79,000
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 (D)
Question No. 4
Work in process inventory
DM used 72,000 162,000 Cost ofgoods
Direct labor 80,000 (B) manufacture
Factory overhead 24,000 (squeeze)
Total 193,000 193,000
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. B
PROBLEM 12-28 Question Nos. 1 and 2

Ledger Physical
Balance Count
Balances prior to adjustment P 314,800 P 293,600
Add: Goods in transit sold, FOB destination 3,200 3,200
Less: unrecorded sale ( 8,400) -
Less: unrecorded purchase returns ( 6,000) -
Less: goods held on consignment - ( 8,800)
Add: unrecorded purchase 3,640-
Add: Goods in transit purchased, FOB shipping point 1,600
Add: Goods out on consignment - 14,800
Adjusted balances
P 307,240 (A) P 304,400 (C)
95
Question No. 3
Adjusted balances, per ledger P 307,240
Adjusted balances, physical count 304,400
Inventory shortage P 2.840 (B)
SUMMARY OF ANSWERS:
1. A 2. C 3. B
PROBLEM 12-29
Accounts
Inventory _____ Payable ______ Sales
Unadjusted balances P 800,000 P335,000 P5,000,000
1 Parts held on consignment ( 18,000) ( 18,000)
2 Parts sold included in the count ( 30,000)
3 Parts in transit to customers,
FOB shipping pt. 22,000
4 Parts on conditional sale - - -
5 Goods out on consignment 100,000
6 Parts in transit purchased,
FOB shipping pt. 16,000 16,000
7 Mdse. Hold for shipping inst.
excluded in the count 160,000
8 Finished special article, incl.
in the count and sale not rec. ( 30,000) - 50,000
Adjusted balances P1,020,000 P333.000 P5,050,000
(A) (A) (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:
Ending Net
Inventory Sales Purchases AP Income
Unadjusted balances 550,000 1,000,000 600,000 450,000 120,000
679
680
681
682
Purch over, COS over, NI under (46,740) (46,740) (46,740)
EI over, COS under, NI
over (46,740) 46,740
683 EI over, COS under, NI
over (4,500) (4,500)
684 Purch under, NI over 1,060 1,060 (1,060)
685 No, No, No
686 No, No, No
310 Yes, Yes, Yes
311 (560) (560)
Sales over, NI over
EI under, NI under (560 x
70%) 392 392
312 (31,940) (31,940)
Sales over, NI over
EI under, NI under (31,940
x 70%) 22,358 22,358
313 (6,350) (6,350)
Sales over, NI over
EI under, NI under (6,350
x 70%) 4,445 4,445
314 Sales over, NI over (1,930) (1,930)
315 No, No, No
316 No, No, No
317 No, No, No
318
Net adjustment (24,045) (40,780) (45,680) (45,680) (19,145)
Adjusted balances 525,955 959,220 554,320 404,320 100,855
(A) (A) (A) (A) (E)
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. E
PROBLEM 12-31
Ending Accounts Accounts
inventory receivable payable Sales Net income
Unadjusted
balance P220,000 P104,000 P138,000 P1,010,000 P180,400
A (20,000) 20,000
B (10,000) (10,000)
C 50,000 (64,000) (64,000) (14,000)
D 14,000 (16,000) (16,000) (2,000)
E ( 24,000) ( 24,000)
Adjusted P 250,000 P24,000 P108,000 P930,000 P160,400
(A) (E) (D) (D) (A)
SUMMARY OF ANSWERS:
1. A 2. E 3. D 4. D 5. A
97
PROBLEM
Chapter 12-32
12: Inventories
Accounts Accounts Net
Inventory payable Receivable Net Sales Purchases Net income
Unadjusted
balances 250,000 2,500,000
400,000 1,000,000 4,000,000 600,000
B 35,000 - - - - 35,000
C 4,000 4,000 - - 4,000 -
D (25,000) - 40,000 40,000 - 15,000
E 10,000 - - - - 10,000
F - - (30,000) (30,000) - (30,000)
G 34,000 - (68,000) (68,000) - (34,000)
H - - (10,000) (10,000) - (10,000)
I - - - (90,000) - (90,000)
J 60,000 60,000 - - 60,000 -
Adjusted
balances
368,000 464,000 932,000 3,842,000 2,564,000 496,000
SUMMARY OF ANSWERS:
1. C 2. C 3. A 4. A 5. D 6. D
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. A
PROBLEM 12-33
Ending Accounts Accounts
inventory Sales receivable Purchases payable
Unadjusted P3,900,00 P2,870,00
balance P280,000 P5,000,000 P2,800,000
0 0
100 (10,000)
101 (12,500) (12,500)
102
103
104 (11,200) (11,200)
105 (15,000)
106
107 (12,500) 15,000 15,000
108
109
110 13,500 13,500
A (11,750) (11,750)
B 8,350 8,350
Adjusted P 242,500 P5,004,800 P3,904,800 P2,796,600 P2,866,600
98
PROBLEM 12-34
Ending Cost of Net Retained
inventory Net Sales Sales Income Earnings
Unadjusted
balance P500,000 P1,000,000 P550,000 P200,000 P1,500,00
a. Sales under 64,000 64,000 0 64,000
b EI under 19,000 (19,000) 19,000 19,000
c Purchase over (23,500) 23,500 23,500
d Sales under 28,500 28,500 28,500
EI over ( 25,800) 25,800 (25,800) (
Adj. P 493,200 P1,092,500 P533,300 P309,200 25,800
P1,609,20
)
0
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. D 5. B
PROBLEM 12-35 Questions No. 1 to 5

2015 Purchases under, CGS under, NI over, RE over
2016 Purchases over, CGS over
R/E
2015 EI under, NI under, RE under Sales EI A/P CGS
36,000
2016 BI under, CGS under Sales under
Purchases under, CGS under EI under, CGS over
Purchases under, CGS under EI under, CGS over 36,000
Total
(32,000)
Legend:
BI - Beginning inventory EI - Ending inventory NI - Net (32,000)
(20,000)
Income CGS - Cost of goods sold RE - Retained earnings
- 12/31/2015 or 01/01/2016 4,000 - overstated (4,000) - (24,000) (24,000)
understated (8,000) 8,000
(4,000) (4,000)
Note: The effect of errors on December 2015 and January (4,000)
2016 has no effect on4,000
the
ending balance of the accounts 4,000
payable (20,000)
on December (12,000)
31, 2016(28,000) (12,000)is
since the payable
expected to be settled before the end of the year.
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. C
99
PROBLEM 12-36
Question No. 1
Sales (475,000/80%) P593,750 100%
Less: Cost of sales 475,000 ______ 80%
Inventory (in units)
Beg. Balance (60,000/P3) 20,000 1 1 25,000 Balance end (squeeze) or

(125,000/5)
Purchases 100,000 | | 95,000 Cost of sales (475,000/5)
Total 120,000 120,000
Inventory (in peso amount)

Beg. Balance (squeeze) 60,000 1 125,000 Balance end (squeeze)
Purchases 540,000 | 475,000 Cost of sales
Total 600,000 600,000

Gross profit 118,750 ______ 20%
Weighted average unit cost = TGAS (peso) / TGAS (units)

Weighted average unit cost (P600,000/120,000) = P5/unit
SUMMARY OF ANSWERS:
the understatement of Ending Inventory on December 31,2014. (B)
Question No. 2
Net income - weighted average P3,250,000
Beginning inventory under, CGS under, Net income over (150,000)
Ending inventory under, CGS over, Net income under 100,000
Adjusted net income - FIFO (B) P3,200,000
1. A 2. A 3. B 4. A 5. B
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
Question No. 3
Computation ofunits sold:
Beginning inventory - units 10,000
Add: Total purchases - units 100,000
Total goods available for sale - units 110,000
Less: Units sold (P6,400,000 / P80/unit) 80,000
Ending inventory in units 30,000
100
The 30,000 ending inventory comes from the last two purchases as follows:
Units Unit cost Total cost
From 4th quarter purchases 10,0 68 680,000
rd
From 3 quarter purchases 20.0 66 1,320,000
Total 30.0 (B) 2,000,000
Question No. 4
Cost (refer to no. 3) 2,000,000
Net realizable value [(P70 - P5) x 30,000] 1,950,000
Loss on inventory write-down (B) 50,000
Question No. 5
Beginning inventory - FIFO 500,000
Add: Net Purchases (P6,480,000 - 980,000) 5,500,000
Less: Ending inventory at cost (see no. 3) 2,000,000
Cost of goods sold at cost 4,100,000
Add: Loss on inventory write-down (see no. 4) 50,000
Cost of goods sold after inventory write-down (A) 4,150,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. B 5. A
PROBLEM 12-38
Question No. 1
Beginning balance 100,000
Add: Purchases of raw materials 970,000
Transport inwards of raw materials 100,000
Total raw materials available for use 1,170,000
Less: Raw materials used [1,170,000 x (100% - 30%)] 819,000
Ending balance (1,170,000 x 30%) (A) 351,000
Question No. 2
Add: Raw materials used (see no. 1) 819,000
Wages (3,000,000 x 60%) 1,800,000
Variable overhead (1,000,000 x 60%) 600,000
Wooden boxes (purchased and used) 300,000
Fixed manufacturing overhead (see computation below) 1,200,000
Total manufacturing cost put into process 4,969,000
Less: Work-in-process completed [4,969,000 x (100% - 20%)] 3,975,200
Ending balance (4,969,000,000x20%) (A) 993,800
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 _ Fixed manufacturing overheads
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:
= 6x200,000 =
1200,000
Fixed overheads expensed (unallocated):

= 800,000 + 700,000 - 1,200 000 =
300,000
Question No. 3
Add: Work-in-process completed (see no. 2) 3,975,200
Less: Cost of goods sold [4,125,200 x (100% -10%)] 819,000
Ending balance (4,125,200x10%) (A) 412,520
Question No. 4
Finished goods and work-in-process (see no. 5) 1,406,320
Raw materials process (see no. 5) 250,000
Total lower of cost and net realizable value (C) 1,656,320
Question No. 5
F/G WIP FG & WIP RM
Net realizable value:
Expected selling price 1,300,000 700,000 2,000,000 300,000
Less: Cost to complete - 100,000 100,000 -
Cost to sell 80,000 20,000 100,000 50,000
Net realizable value 1,220,000 580,000 1,800,000 250,000
Cost:
Ending balance 412,520 993,800 1,406,320 351,000
Lower of cost or NRV 1,406,320 250,000

Write-down (C) - 101,000
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:
102
1. A 2. A 3. A 4. C 5. C
(10,500 - 1,000 + 3,000) = 12,000 units

No. of units Unit cost Total
3,000 14 P 42,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
12,000 P 176,000 (A)
Question No. 2
(4,500+700+600) =5,800 units
No. of units Unit cost Total
1,800 19 P 34,200
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
5,800 P 117,400 (A)
Question No. 3 T-shirts:
Net realizable value NRV Cost Lower
(12,000 x (P16-(10% x P16)) P172,800 P176,000 P 172,800
Jackets:
(5,800 x (P22-(10%xP22) 114,840 117,400 114,840
Lower of cost or NRV P287,640 P 293,400 P 287,640
Question No. 4
Total cost (see no. 3) P 293,400
Less: Lower of cost or NRV (see no. 3) 287,640
Loss on inventory write-down (B) P 5,760
Question No. 5
Beginning inventories:
T-shirts (9,000 x P11) P 99,000
Jackets (5,000 x P15) 75,000 P 174,000
Add:*Total purchases (299,500 + 183,900) 483,400
Total goods available for sale P 657,400
103
Less: Merchandise inventory at cost 293,400
Cost of sales before inventory write-down P 364,000
Add: Loss on inventory write-down 5,760
Cost of sales after inventory write-down (B) P369.760
*T-shirts
4,000 P12 P 48,000
3,000 12 36,000
2,500 13 32,500
3,500 14 49,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
22,000 P 299,500
Jackets
900 P16 P 14,400
1,100 18 19,800
1,500 19 28,500
2,000 19 38,000
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
9,500 P 183,900
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. B 5. B
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 Balance end
Net Purchases 600,000 1 1,200,000 Direct materials used
2,200,000 | 1,600,000
Total 2,800,000 | 2,800,000
CASE NO. 1
Question No. 1
GP Rate: 2012 2013 2014 2015
Gross Profit 2,000,000 3,500,000 4.0. 000
Divide by: Sales 1,700,000 2,800,000 3.0. 000
Gross Profit Rate 0.15 0.20 0.25 0.30
104
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 6,000,000
Multiply by: Cost Ratio 0.70
Cost of goods sold 4,200,000 (B)
Beginning balance 2,800,000 Balance end

Cost ofgoods 1 1 2,000,000 Cost of goods sold
manufactured 4,200,000
3,400,000 |
Total 6,200,000 | 6,200,000
Work in Process
Beginning balance 2,000,000 Balance end (A)
Direct materials used 1 1 2,600,000 Cost ofgoods
Direct labor 1,600,000 manufactured
Factory overhead 1,600,000 3,400,000
800,000 |
Total 6,000,000 | 6,000,000
Computation of factory overhead:

Direct labor cost 1,600,000
Multiply by: Predetermined rate 50%
Factory overhead 800,000
CASE NO. 2:
Question No. 3
GP Rate: 2012 2013 2014 2015
Gross Profit 340,000 630,000 1,000,000
Divide by: Sales 2,000,000 3,500,000 4,000,000
Gross Profit Rate 0.17 0.18 0.25 0.20
16% + 18% + 25%

Gross Profit Rate
3
105
Question No. 2
Finished Goods
20%
The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods sold is
computed as follows:
Sales 6,000,000
Cost of goods sold 4,800,000 (B)
The GP rate in 2015 is computed as follows:
106
Question No. 4
Finished Goods
2,800,000
Beginning balance 1 1 2,000,000 Balance end
Cost ofgoods 4,800,000 Cost of goods sold
manufactured 4,000,000 |
Total 6,800,000 | 6,800,000
Work in Process
Beginning balance 2,000,000 1 2,000,000 Balance end (A)
Direct materials used 1
1,600,000 Cost ofgoods
Direct labor 1,600,000 4,000,000 manufactured
Factory overhead 800,000 |
Total 6,000,000 | 6,000,000
CASE NO. 3:
Question No. 5
The gross profit for 2015 is computed based on the overall gross profit for 2013 and
2014:
________ 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 6,000,000
Question No. 6
2,800,000
Beginning balance 1 1 2,000,000 Balance end
Cost ofgoods 4,560,000 Cost of goods sold
manufactured 3,760,000 |
Total 6,560,000 | 6,560,000
Work in Process
Beginning balance 2,000,000 1 2,240,000 Balance end (A)
Direct materials used 1
1,600,000 Cost ofgoods
Direct labor 1,600,000 3,760,000 manufactured
Factory overhead 800,000 |
Total 6,000,000 | 6,000,000

Cost of goods sold 4,560,000 (A)
Finished Goods
107
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. A 6. A
PROBLEM 12-41
Beg. Balance 32,000 1 130,000 Balance end (squeeze)
DM purchased 340,000 242,000 Direct materials used (602,00-
360,000)
Total 372,000 372,000
Work in proce ss inventory

Beg. Balance 50,000 Balance end(squeeze)
DM used 68,000 860,000 Cost ofgoods manufacture
Direct labor 242.000
Factory overhead 360.000
(360,000/60% x 40%) 240.000
Total 910,000 910,000
Conversion cost = Direct labor + Factory overhead

Prime cost = DM used + Direct Labor
Finished goods
Beg. Balance Balance end (squeeze)
60,000
Cost of goods manufactured 120,000 Cost of sales (1,000,000 x
1
(squeeze) 800,000
860,000 1 80%)
Total 920,000 920,000
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. B 5. A
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.
108
Question No. 1
Accounts payable
250,000 555.0 Beg. Balance
Balance end 70.000 3,000,000 Purchases
Purchase ret. and allow. 80.0 100.000 Freight-in
Purchase discounts 3,255,000
Payments to supplier
(squeeze)
Total 3,655,000 3,655,000
Question No. 2
Net purchases 2,950,000 | 2,830,000 Direct materials used
Total 3,150,000 3,150,000
Purchases 3,000,000
Add: Freight-in 100,000
Gross Purchases 3,100,000
Less: Purchase returns and allow Purchase 70.000
discounts 80.000
Question No. 3
Work in process
Beg. Balance 250.0 II 280,000 Balance end
Direct materials used 2,950,000 4,375,000 Cost ofgoods
Direct labor 900.000 manufactured
Factory overhead 675.000
Total 4,655,000 4,655,000
Question No. 4
Sales P5,100,000 120%
Less: Cost of sales (5,000,000/120%) 4,250,000 100%
Gross profit 850,000 20%
Note: Do not deduct sales discount from the gross sales since sales discount does not
constitute actual return of merchandise.
Question No. 5
Finished oods
Cost ofgoods 4,375,000 4,250,000 Cost of goods sold
manufactured
109
Total 4,775,000 4,775,000
Estimated finished goods 525,000

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

Less: Cost of goods out on consignment 20,000
Salvage value 10,000
Inventory fire loss 665,000
SUMMARY OF ANSWERS:
A 7. A
1. A 2. A 3. A 4. B 5. B 6.
PROBLEM 12-43
Question No. 1
Accounts payable - March 31,2015 1,185,000
Add: Unrecorded obligation - April 25 April 425.000
Shipments 100.000
Less: Payment from April 1 to 25 (285,000 + 100,000) 385,000
Adjusted balance - April 25 1,325,000 (C)
Note: The P22,500 of purchase return should not be deducted from the accounts
payable since it was refunded.
110
Question No. 2
Purchases - March 31, 2015 2,100,000
Add: Unrecorded obligation - April 25 425,000
April Shipments 100,000
Less: Purchase return 22,500
Adjusted Net Purchases - April 25 2,602,500 (B)
Question No. 3
Sales - March 31, 2015 4,520,000
Add: Sales April 1 to 25 (see computation below) 730,000
Adjusted Sales - April 25 5,250,000 (D)
Computation of sales:
Accounts Receivable
Beg. Bal.- 03/31/2015 1,250,000
Sales (squeeze) 730,000 1,320,000 Bal. end (acknowledged)
Write-off (never be
250.0 acknowledged)
Collections
510.0 (P532,500 -22,500)
Total 2,080,000 2,080,000
Questions No. 4 and 5

Beginning inventory - March 31,2014 2,500,000
Add: Purchases 2,602,500
Less: Cost of sales (55% x 5,250,000) 2,887,500 4. (D)
Estimated ending inventory 2,215,000
Less: Salvaged value of inventory worth P325,000 150,000
Inventory in transit 65,000
Inventory loss 2,000,000 5. (B)
Computation of cost ratio:

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

Cost Ratio (19,250,000 / 35,000,000) = 55%
SUMMARY OF ANSWERS:
1. C 2. B 3. D 4. D 5. B
111
PROBLEM 12-44
Note to professor: The purchases for the element months should be eleven.

Purchases ending 11
mos 12 mos
Unadjusted balance 2.700.0 3
Shipment in Nov. included in December purchases ,200,000
Unsalable shipments received Deposits in October 30,0 -
shipped February Adjusted balance (4.0) (
6,000)
(8.0) (8,000)
2.718.0 3
,186,000
1. (C) 2. (D)
Question No. 3
Beginning inventory - January 1, 2015 Add: 350.000
Purchases for 11 months (see No. 1) Less: 2.718.000
Ending inventory - Nov. 30, 2015 Cost of sales 380.000
2.688.0 (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 3.840.0
Less: Sales at cost 3,360,000
Sales in December 2015 made at a profit 480.0
Multiply: Cost ratio (2,688,000 / 3,360,000) 40,000
Cost of sales made at profit Add: Cost of sales 440.0
made at cost Total Cost of Sales -December 80%
352.0
392.0 (A)
Beginning inventory - Nov. 30, 2015 380,000
Add: Purchases for December (3,186,000 - 2,718,000) 468,000
Less: Cost of Sales - December 392,000
Ending inventory - December 31,2015 456,000 (A)
SUMMARY OF ANSWERS:
1. C 2. D 3. A 4. A 5. A
112
PROBLEM 12-45
Cost Retail
Inventory, Jan 1 300,000 1,200,000
Purchases 6,000,000 8,500,000
Purchase returns (400,000) (800,000)
Purchase discounts (150,000) -
Purchase allowance (50,000) -
Freight-in 20,000 -
Departmental Transfer-In 600,000 1,100,000
Departmental Transfer-Out (560,000) (1,334,000)
Totals 5,760,000 8,666,000
Basis of computation of cost ratios

Totals 5,760,000 8,666,000
Markups 600,000
Markup cancellations (50,000)
Basis of computation (conservative) 5,760,000 9,216,000
Markdown (316,000)
Markdown cancellations 100,000
Basis of computation (average) 5,760,000 9,000,000
Cost ratios:
Conservativ
e _ 5,760,000
Cost ratio _
9,216,000
Cost ratio = 62,50%
5,760,000
Average 9,000,000
Cost ratio
= 64%
Cost ratio
FIFO 5,760,000-300,000
Cost ratio 9,000,000 - 1,200,000
= 70%
Cost ratio ending inventory @ retail - for all methods
Estimated
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
113
Ending inventory at cost (EI Cost ofgoods sold (TGAS
Cost method @ retail x cost ratio) @cost - EI @cost)
Conservative (62.5%) P 1,375,000 4,385,000
FIFO (70%) 1,540,000 4,220,000
Average (64%) 1,408,000 4,352,000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C 5. C 6. D
PROBLEM 12-46
Question No. 1
Subsidiary General
Ledger _____ Ledger
Unadjusted bal. P 760,000 P 1,020,000 (
Undelivered sales Valid 100,000)
Sales 60,000
Sales FOB destination ( 100,000)
NSF check 50,000 50,000
Collection by the bank ( 60,000) ( 60,000)
Sales in 2015 recorded in 2016 DR No. 38740 3,360 3,360
Receivable ins. Co DR No. 38741 Sales in 2016 ( 10,080) ( 10,080)
recorded in 2015 DR No. 38743 Adjusted ( 19,200) ( 19.200)
balance (D) P 784,080 P 784,080
Question No. 2
Current:
Unadjusted beginning Balance 97,500
Add: Valid Sales in 2015 (60,000 + 3,360) 63,360
Total 160,860
Less: Receivable ins. Co (DR # 38741) 10,080
Sales in 2016 recorded in 2015 (DR # 38743) 19,200
Current Accounts Receivable balance 131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1) 784,080
Less: Current Accounts Receivable balance Past due 131,580
Accounts Receivable *or (662,500+50,000-60,000) *652,500
Age classification Amount

Percenta Total
114
ge
Current 131,580 6 7,894.80

Past due 652,500 10 65,250.00
Allowance for doubtful accounts (A) 73,144.80
115
Question No. 3
Allowance for doubtful accounts, beginning 7,000.00
Less: Accounts written off
Less: Allowance for doubtful accounts, ending 73.144.80
Doubtful accounts expense (A) 66.144.80
Question No. 4
Unadjusted Merchandise Inventory, ending 316.0
Add: Cost of merchandise sold of DR # 38743(19,200/120%) 16,000
Doubtful accounts expense (B) 332.000
Question No. 5
Unadjusted Net Sales balance P3,000,000 (
Undelivered sales Sales FOB 100,000) (
destination 100,000)
Sales in 2015 recorded in 2016 DR No. 38740 Sales in 3,360 (
2016 recorded in 2015 DR No. 38743 Adjusted balance(B) 19,200)
P 2.784.160
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4. B 5. B
PROBLEM NO. 6-47 Question

No. 1
Cash, unadjusted balance 100,000
Unrecorded disbursement (10,000)
NSF check (2,000)
Adjusted balance-cash 88,000
Question No. 2 (A)

Accounts receivable, unadjusted 250,000
NSF check 2,000
Invalid sales already recorded (16,000)
Adjusted Accounts receivable 236,000
x percent uncollectible
(100%-5%+2%) 93%
Net realizable value 219,480
Question No. 3 (A)

Unadjusted balance, MI 300,000
Goods shipped FOB shipping pt. 30,000
Cost of goods in transit to customer 10,000
Adjusted merchandise inventory 340,000
(C)
116
Question No. 4
Unadjusted balance, AP 120,000
Unrecorded disbursement (10,000)
Unrecorded purchase 30,000
Adjusted accounts payable 140,000 (C)
Question No. 5
Cash 88,000
Net realizable value 219,480
Merchandise inventory 340,000
Prepayments 12,000
Current Assets 659,480
Current liabilities 320,000
Working capital 339,480 (B)
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. C 5. B
117
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) Kindly disregard the (10,000 x % x
238,000 P48)
Requirement No. 2 FVTOCI
Net Selling Price (10,000 x % x P48) Kindly disregard the (10,000 x % x
238,000 P48)
Financial asset through other
comprehensive income (FVTOCI) -
Cash 238,000
Journal entry on 01/02/15
Loss on sale 37,000
Cash 238,000
FVTOCI 275,000
Loss on sale 12,000
FVTOCI 250,000
SHE
PROBLEM 14-1 Financial Assets and Financial Liabilities

FA NFA FL NFL
Cash and cash equivalents 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 -
Accumulated depreciation - (50) -
Intangible assets - 30 -
Prepaid rent - 20 -
Treasury shares - - -
Claims for tax refund - 45 -
Deferred tax assets - 60 -
Accounts payable - - 150
Utilities payable - - 250
(23)
118
Accrued interest expense - - 18
119
Cash dividends payable 100
27 - -
Finance lease liability 861 858 72545 62 3,712 -
-
Bonds payable 120 - -
(E) (A) (B) (A)
Discount on Introduction
Chapter 14: bonds payable (15)Securities-
to Financial Asset and Investment in Equity -
Security deposit 30 - -
Advances from customers - 16 -
Unearned rent - 8 -
Warranty obligations - 13 -
Unearned interest on receivables - 5 -
Income taxes payable - 9 -
SSS contributions payable - 5 -
PHILHEALTH contributions payable - 6 -
Share Premium - - 35
Accumulated Profits-appropriated for
plant expansion Accumulated Profits- - - 500
unappropriated
Issued redeemable preference - - 3,200
shares (with mandatory
redemption)
Issued Preference shares capital
Adjusted balances
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. A
PROBLEM 14-2 Acquisition of Investment

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

Dividend receivable 32,000
120
2) FVTOCI
1/5/2015 Financial Asset at FVTOCI 1,615,000
1,615,000
Cash
1/10/2015 Dividend receivable 32,000
Dividend income 32,000
2/14/2015 Cash 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) 1,584,000
Dividends receivable 16,000
Brokerage expense 10,000
Commission Expense 5,000
Cash 1,615,000
2/14/2015
Cash
16,000
Dividend receivable
16,000
12/31/2015 64,000
Unrealized Loss - PL
Financial Asset at FVTPL
64,000
12/31/2016 400,000
Financial Asset at FVTPL
Unrealized gain - PL
400,000
2) Fair Value through Other Comprehensive Income securities

1/5/2015 FVTOCI securities 1,599,000
Cash
1,615,000
2/14/2015
Cash
16,000
Dividend receivable
16,000
12/31/2015 79,000
Unrealized loss - equity
FVTOCI securities
79,000
12/31/2016 400,000
FVTOCI securities
Unrealized loss - equity 79,000
Unrealized gain - equity 321,000
121
PROBLEM 14-4 Derecognition of Financial Assets - Sale of Investment
CASE NO. 1: FVTPL
Question No. 1
Chapter
Nil, since14:
theIntroduction to Financial
above securities Asset and
are FVTPL Investment
unrealized gaininor
Equity Securities
loss is recognized in
the profit or loss. (A)
Question No. 2
Consideration received 375,000
Less: Brokerage and commission 10,000
Net Selling Price 365,000
Less: Carrying value (800,000 x %) 400,000
Realized loss on sale - P&L (B) (35,000)
CASE NO. 2: FVTOCI

Question No. 3
800,000
Fair value, 12/31/2014 Less: Cost
750.000
Unrealized gain - P&L (B)
50.000
Question No. 4
Consideration received Less: 375.0
Brokerage and commission Net 10,000
365.000
Selling Price
400.0
Less: Carrying value (800,000 x %)
(B) (35,000)
Realized loss on sale - P&L
Question No. 5
Journal entries for the sale are:
12/31/2014 FVTPL 50,000

Unrealized gain-P&L
50,000
1/2/2015 Cash 365,000
35,000
Loss on sale
400,000
FVPTL
To record the sale
2) FVTOCI
50,000
12/31/2014 FVTOCI
Unrealized gain-OCI 50,000
1/2/2015 Cash 365,000
Loss on sale (if any) 35,000
FVTOCI 400,000
To record the sale
Unrealized Gain (50,000 X %) Retained 25,000

earnings 25,000
To record transfer of unrealized gain to Retained earnings
1) FVTPL
122
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B
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.
Share dividends is not regarded as an income., however different type of shares
2. Investment in Preference shares - FVTOCI 88,235
Investment in Ordinary shares - FVTOCI 88,235
Allocation: Total Fraction Allocated

Fair value cost
Pref. shares (1,000 x P100) 100,000 10/85 88,235
Ordinary shares (15,000 x P50) 750.000 75/85 661,765
Total 850.000 750,000
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). (B)
Question No. 2
December 1 Dividend Receivable (15,000 x P4) 60,000
123
December 15 No formal accounting entry
December 31 Cash 60,000
Dividend Receivable 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%) 75,000 75,000
Dividend income
December 31 No journal entry
February 15 Noncash Asset 75,000

Dividend Receivable 75,000
PROBLEM 14-10 Cash Received in Lieu of Share dividends
Question No. 1
Nil. The share dividend is not considered an income. (A)
Question No. 2
Net Selling Price (2,250 x P18) 40,500
Less: Carrying amount of the investment sold
(P172,500/(15,000+(15% x 15,000) x 2,250 22,500
Gain (or loss) on sale (E) 18,000
Question No. 3
October 1 Memo entry
October 31 Cash 45,000
Gain on sale 18,000
FA at FVTOCI 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)
124
Question No. 2
October 1 Dividend Receivable (15,000 x P4) 60,000
Dividend
Chapter 14: Introduction incomeAsset and Investment in Equity Securities
to Financial 60,000
October 31 66,000
FA at FVTOCI (15,000/5 x P22) Dividend
receivable 60,000
PROBLEM 14-12 Dividends Out Of Capital
Cash (P100x 15% x 10,000) 150,000
Investment 150,000
Questions No. 3
and 4 150,000
Cash 70,000
Loss on liquidation 220,000
Investment
SUMMARY OF ANSWERS:
1. A 2. D 3. B 4. C
PROBLEM 14-13 Stock Split and Special Assessment Question No. 1

Date No. of Cost per Total
shares share Cost
1/1 10,000 P21 P210,000
3/1 stock split 15,000
Total (10,000x5/2) 25,000 P8.40 P210,000
11/1 Special assessment (P1.60 x
25,000) 40,000
Total 25,000 P10 250,000
(D)
Question No. 2
Fairvalue(P15x 25,000) P375,000
Less: Carrying value 250,000
Unrealized gain-OCI P125,000 (D)

1/1 Financial Asset at FVTOCI 210,000
Cash 210,000
3/1 Received'5,000 shares as a result of 5
for 2 share split.
125
10/1 Financial Asset at FVTOCI 60,000
Cash (P1.60x 25,000)
60,000
12/31
Financial Asset at FVTOCI 125,000
Unrealized gain - OCI (C) 125,000
[(P25x 25,000) -P250,000]
SUMMARY OF ANSWERS:
1. D 2. D 3. B 4. C
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
xP80). (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) 400,000
Cash 400,000
Fair Value Through Other Comprehensive Income
June 15 Stock rights (P20 x 10,000) 200,000
Unrealized gain - P/L 200,000
July 15 FVTOCI (P80 x 10,000/2)+ 200,000 600,000
Cash 400.000
Stock rights 200.000
PROBLEM 14-15 Theoretical Value of Rights
Question No. 1
When the stock is selling right-on
r P160-P100
Value of one right = —
5+1
126
P10
Question No. 2
When the stock is selling ex-right
P160-P100
Value or one right = 5
P12
SUMMARY OF ANSWERS:
1. B 2. C
PROBLEM 14-16 Dividend Income

Cash dividend 1.500.0
Shares in lieu of cash dividends (5,000 x P150) 750,000
2.250.000
Total dividend income (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 (A)
Question No. 3
Selling price P50,000
Less: Commission and taxes 5,000
Net selling price 45,000
Less: Carrying value [2,500x(P90,000/6,000)] 37,500
Gain on sale (C) P7.500
127
Question No. 4
EDA Corp. shares [P50- (P30,000/1,000)] x 1,000 = P20,000
DJOA, Inc. [P15 - (P90,000/6,000)] x 3,500 = -
RVFE, Co. [P45 - (P80,000/2,000)] x 2,000 = 10,000
ARP, Co. [P100 - (P880,000/8,000)] x 8,000 = ( 80,000)
Loss chargeable to income statement (B) (P50,000)
Question No. 5
EDA Corporation shares P50 x 1,000 = P50,000
DJOA, Inc. P15 x 3,500 = 52,500
RVFE, Co. P45 x 2,000 = 90,000
ARP, Co. P100 x 8,000 = 800,000
Total balance of financial asset at profit or loss (A) P992,500
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. B 5. A
PROBLEM 14-19 Fair Value through Other Comprehensive Income

Question No. 1
1/1/2015 Book Value P 880,000
Brokerage fee 10,000
Commission Dividends 10,000
receivable Costof ( 16,000)
FVTOCI P 884,000 (A)
Question No. 2
Dividend income (P2 x 6,000) = P12.000 (D)
Question No. 3
P 17,500
Proceeds(P35 x 500)
( 20,000)
Cost (P500 x (P88,000/(2,000 x 110%)) Loss
P (2,500) (B)
on sale
Question No. 4
P 35,000 (
Net Proceeds (P40,000 - P5,000)
37,500)
Carrying value (2,500 x (P90,000/6,000))
( 5,000)*
Dividends on stocks sold (P2 x 2,500) Loss
P (7,500) (E)
on sale
*This was sold dividend-on.
Question No. 5
EDA Corporation preference shares (1,000 x P50) P 50,000 DJOA, Inc. (3,500 x P15)
52,500
RVFE Co. ((2,000 x 110% - 500) x P45) 76,500
128
ARP Co. (8,000 xP100) 800,000
Adjusted balance P 979,000 (A)
SUMMARY OF ANSWERS:
1. A 2. D 3. C 4. E 5. A
PROBLEM 14-20 Exchange of One Financial Asset into

Another Financial Asset
Question No. 1 480.000

Fair value- Ordinary Shares (6,000 x P80) 425.0
Less: Carrying value- Pref. Shares (P850,000/8,000 x 4,000) 55,000
Gain on exchange (C)
Question No. 2
Journal entry would be:
Investment in Trading- Ordinary Shares (6,000 x P80) 480,000
Gain on exchange 55,000
Investment in Trading- Pref. Shares (P800,000/8,000 x 4,000) 425,000
SUMMARY OF ANSWERS:
1. C 2. BorC
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
Question No. 2 220,000 (B)
March 31 Financial asset at FVTOCI 820,000
Land
Gain on exchange
(820,000-600,000)
600,000
220,000
SUMMARY OF ANSWERS:
1. B 2. B
PROBLEM 14-22 Exchange of a Financial

Asset for PPE
650.000
Question No. 1 Fair value of the financial 600.000
asset Less: Carrying value of the financial 50,000 (B)
asset Gain on exchange
129
Question No. 2
March 31 Land (at fair value of the asset given up) 650,000
FVTOCI 600,000
Gain on exchange (650,000-600,000) 50,000

Unrealized loss (625,000-600,000) 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) P 66,000 (D)
Question No. 2
Cash paid (P90 x (10,000/5)) P 180,000
Cost of stock rights used (P4 x 10,000) 40,000
Total investment cost P 220,000 (B)
Question No. 3
Proceeds (P5.5 x 1,000) P 5,500
Cost of stock rights (P4 x 1,000) 4,000
Gain on sale of stock rights P 1,500 (C)
Question No. 4
Proceeds P 440,000
Cost of shares sold (P76 ** x 4,000) 304.000
Gain on sale of stocks 136.000
P (D)
130
Question No. 5
Original investment cost P 880,000 44,000)
Cost allocated to stock rights* ( 220,000 304,000)
Additional investment ** 752.000 (D)
Sale of investment (_
Adjusted cost of investment P
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. D 5. D
PROBLEM 14-25
Note to professor: Question No. 5 should be 2015 instead of 2014.
Question No. 1
Cash paid (400K+20K) 420,000
Less: dividends 10,000
Correct cost 410,000 (D)
Question No. 2
Feb. 10 30,000
Nov. 2
(10,000+(11,000/5)x1 13,200
Total dividend income 43,200 (C)
Question No. 3
Fair value of new FA (10,000 x 40) 400,000
Less: Cost (900,000/15K x 5K) 300,000
Gain on conversion 100,000 (A)
Question No. 4
Consideration received (2,000 x 70) 140.0
Less: Dividends (2,000 x P1) 2,000
Net Selling Price Less: Cost Gain on 138.000
sale 114.000
Shares Cost 24,000 (B)
10000 550,000
10-Feb 1,000
Total 11,000 550,000
1-May
(11,000/5) 2,200 202,400
Total 13,200 752,400
15-Nov (2,000) (114,000)
Total 11,200 638,400
Cost of stocks on May 1
131
Subs. Price (11,000/5 x P62) 136,400
Add cost of stock rights (6 x 11,000) 66,000
Cost of stocks on May 1 202,400
Question No. 5
Fair values Cost Difference
Gerrit-PS (70 x 10,000) 700,000 600.0 (900,000/15Kx 10K)
-OS (45x10,000) 450,000 400.0
Loesch (72x11,200) 806,400 638,400
Barr (20x20,000) 400,000 410.000
2,356,400 2,048,400 308,000 (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. B 5. A

FVTOCI Portfolio - 12/31/2014 Coloma
Company Soliman 3.070.0 2,737,500
Villanueva Company Less: FVTOCI 1.871.0 7,678,500
Portfolio - 01/01/2014 Coloma Company
Soliman 3.050.000
Villanueva Company Unrealized gain - SFP 2.725.000
1.875.0 7,650,000
Question No. 2 (C) 28,500
Fair value of shares
Less: Carrying amount of Soliman
portfolio Gain on exchange
2.797.500
Note that the carrying amount is equal to 2.737.500
the fair value previous remeasurement 60,000 (B)
date (12/31/2014).
Question No. 3
Proceeds from sale ofAquino shares 2.590.000
Less: Carrying amount of Aquino portfolio 2.600.0
Loss on sale (10,000) (B)
Question No. 4
FVTOCI Portfolio -12/31/2015 Coloma
Company Villanueva Company Less: 3,080,000
FVTOCI Portfolio - 01/01/2014 1,867,500 4,947,500
132
Coloma Company 3,050,000
Villanueva Company 1,875,000 4,925,000
Unrealized gain - SFP (cumulative) (C) 22,500
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C
PROBLEM 14-27
Question No. 1
Adjusted balance (5,000 - 4,000) x P50 = P200.000 (A)
Question No. 2
Type of Fair Total fair Allocated
stocks # shares value value cost
Ordinary 10,000 P30 P300,000 P234,375
Preference 2,000 10 20,000 15,625 (B)
Total cost P320,000 P250,000
Question No. 3
Allocate part of the investment cost to the preference shares.
Question No. 4
Proceeds (1,000 xP17) P 17,000
Carrying amount [(P15,625/(10,000/5)) x 1,000)(^_7J812J50)
Gain on sale P 9,187.50 (C)
Question No. 5
Proceeds, exclusive of interest Carrying P 280,000 (
amount (250 x 1,000 x 110%) 275,000)
Gain on sale P 5,000 (A)
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C 5. A
PROBLEM 14-28
Question No. 1
Net Selling price 250,000
Less: Carrying value (740,000/40,000 x 5,000) 92,500
Gain on sale (D) 157,500
Question No. 2
Consideration received 270,000
Less: _________
133
Dividend income of the investment sold (6,000 x *P20 x 20%) 24,000
Less: Carrying value (740,000/40,000 x 6,000) 111,000
*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) 140,000
12/1/2015 (35,000 x 20% xP20) 140,000
Total dividend income (A) 280,000

Fair value (29,000 x P43) 1,247,000 4. (D)
Less: Cost (700,000/40,000 x 29,000) 507,500
Unrealized gain 739,500 5. (D)
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. D 5. D
134
Chapter 15: Investment in Debt Securities
Note to professor:
537 SOLUTION # 1
The carrying value as of December 31, 2013 is computed using Change
the market interest of 9% for 8 periods as follows: P120,000 to
Fair value-12/31/2014 (8M x 1.04) P8,320,000 P80,000
Less: Fair value-12/31/2013 8Mx 1.05) 8,400,000
Loss on changes in fair value-FVTPL-P&L P120,000
CHAPTER 15: INVESTMENT IN DEBT SECURITIES
PROBLEM 15-1 Held for Trading

Interest Income and Unrealized Gains 3,000,000
or Losses 10%
12/12
Question No. 1
300,000
Face value
Multiply by: Nominal rate Multiply by: Months outstanding Interest Income (A)
Question No. 2
Fair value of the bonds (3M x 104) 3,120,000
Less: Carrying value 2,855,940
Unrealized gain - P&L (E) 264,060
PROBLEM 15-2 Derecognition of Held for Trading Debt Securities

Fair value of the bonds 3,120,000
PROBLEM 15-3 Acquisition of FAAC Term Bonds on Interest

762,600
Date Question No. 1 364,476
Presentvalue of Principal (1200000 x 0.6355 ) 1,127,076
Add: Present Value of interest payments (120000 x 3.0373 )
Present value of the investment bonds (C)
Question No. 2 Amortization table:
Interest Interest Premium Present
Date Collection Income Amortization value
01/01/2015 1,127,076
12/31/2015 120,000 (B) 135,249 15,249 1,142,325
135
PROBLEM 15-4 Acquisition of FAAC Term Bonds in Between Interest Dates
Question No. 1
Present value of the investment bonds 1,878,460
Add: Discount amortization
Effective interest 56,354
Nominal interest 50,000 _______ 6,354
Present value of the investment bonds, April 1 1,884,814
Add: Accrued interest 50,000
Total Present value of the bonds (E) 1,934,814
Question No. 2 Amortization table:
Interest Interest Discount Present
01/01/2015 1,878,460
12/31/2015 200,000 225,415 25,415 1,903,875
Total interest income (P225,425 x 9/12) = P169.061 (B)
PROBLEM 15-5 Interpolation of Effective Interest Rate of FAAC - Term Bonds and
Computation of Interest Income
Purchase price P1,100,000
Add: Transaction cost ____ 44,752
Initial carrying amount 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 Present Total Present
Principal Collection Collection Value Factor Value
450,000 180,000 630,000 0.8929 562,527
450,000 135,000 585,000 0.7972 466,362
450,000 90,000 540,000 0.7118 384,372
450,000 45,000 495,000 0.6355 314,573
Total Present Value of the serial bonds (C) 1,727,834
Question No. 2
Interest income (1,727,834 x 12%) = 207.340 (B)
136
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) 3,120,000
Less: Carrying value, reclassification date [(P2,855,940 x 1.12) - (10% x P3,000,000)
2,898,653
Gain on reclassification (B) 221,347
PROBLEM 15-8 Reclassification: Held for Trading to Financial Asset at Amortized

Cost
Question No. 1
Interest income (P3,000,000 x 10%) = 300.000 (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) 3,120,000
Less: Carrying value, reclassification date (103% x P3,000,000) 3,090,000
Gain on reclassification (D) 30,000
PROBLEM 15-9 Impairment of Financial Asset at Amortized Cost

SOLUTION:
Question No. 1
Carrying amount of the investment - 12/31/2015 3,864,680
Less: Present value of expected cash flows (get the present value
computed using original effective rate) 3,188,800
Impairment loss (B) 675,880
Question No. 2
Interest income (3,188,800 x 12%) = 382.560 (D)
137
PROBLEM 15-10 Reversal of Impairment on Financial Asset at Amortized
Cost
Present Value of Principal (5,000,000 x 0.8929) 4,464,500
Add: Present Value of interest payments (500,000 x 2 x 0.8929) 892,900
Present value expected cash flows, date of reversal 5,357,400

Would have been present value had there been no impairment 4,910,521
Lower of the two above 4,910,521
Less: Actual amortized cost (P3,986,000 x 1.12) 4,464,320
Gain on reversal of impairment (D) 446,201
PROBLEM 15-11
Question No. 1
Cost of investment - Jan. 21(P2,000,000 x 102%) = P2.040.000 (A)
Question No. 2
Proceeds P1,060,000
Less: Accrued interest (P1,000,000 x 9% x 3/12) 22,500
Net Proceeds 1,037,500
Less: Carrying amount (P2,000,000 x 102%) 1,020,000
Gain on sale (A) P 17,500
Question No. 3
Proceeds P 419,000
Less: Accrued interest (P400,000 x 9% x 5/12) 15,000
Net proceeds 404.000
Carrying amount (P400,000 x 102%) 408.000
Loss on sale (A) ( 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 P 9,500
280/360 Outstanding bonds: 28,000
P600,000 x 9% x 340/360
Total interest income (A) 51,000
P 88,500
Question No. 5
Carrying value- 12/31/2014 rP600.000 x 102%) = P612,000 (A)
The market value is equal to its cost.
138
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A
PROBLEM 15-12 Impairment and Reversal of Impairment Loss

Question No. 1
Present value of Principal (4,000,000 x 0.683) 2,732,000
Add: Present Value of interest payments (480,000 X 3.1699) 1,521,552
Present value of the investment bonds (C) 4,253,552
Question No. 2
Amortization table (original):
01/01/2014 4,253,552
12/31/2014 480,000 425,355 (B) 54,645 4,198,907
12/31/2015 480,000 419,891 60,109 4,138,798
12/31/2016 480,000 413,880 66,152 4,072,646
12/31/2017 480,000 407,355 72,645 4,000,000
Question No. 3
Carrying amount of the investment 12/31/2015 (see table above) 4,138,798 Less:
Present value of expected cash flows 3,305,600
Present value of Principal (4,000,000 x 0.8264) 3,305,600

Add: PV of interest payments (No interest will be recovered) _________ -
Question No. 4
Interest income (P3,305,600 x 10%) = 330,560 (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 4,509,136
Would have been present value had there been no impairment 4,072,646
Lower of the two above 4,072,646

Less: Actual amortized cost (P3,305,600 x 1.10) 3,636,160
Gain on reversal of impairment (D) 436,486
Presentvalue of Principal (4,000,000 x 0.9091) 3,636,400

Add: Present value of interest payments (480,000 x 2 x 0.9091) 872,736
PROBLEM 15-13
Question No. 1
Proceeds P 204,000
139
Less: Carrying amount [(P432,000/24,000) x 12,000) 216,000
Loss on sale (B) (12,000)
Question No. 2
Cost, 1/1/2014 P5,311,400
Less: Amortized cost, 12/31/2014 5,242,540
Premium amortization 68,860
Less: Nominal interest (5,000,000 x 12%) 600,000
Interest Income 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) P 22,500
Nominal interest (P2,000,000 x 13%) 260.000
Effective interest P 282,500
Divide by: 1/1/2014 amortized cost P1.881.000
Effective interest rate 15%
2015 Interest Income = 12/31/2014 amortized cost x Effective interest rate =
P1,903,150x15% = P285.472.50 (C)
Question No. 4 P2,020,000
Fair value, 1/1/2016 (2,000,000x101)
Less: Amortized cost - 01/01/2016
Bookvalue, 12/31/2014
Add: Discount amortization P 1,903,150
Nominal interest 260,000
Less: Effective interest 282,473 22,473 1,928,623
Gain on reclassification (C) P 91.377
Question No. 5
Trading securities:
Panaghoy, Inc. (14,400 x P22) P 316,800
Lamentation, Inc. [(24,000 - 12,000) x P15] 180,000
Total P 496,800
FVTOCI:
Genesis bonds P 5,166,794
Exodus bonds 1,928,263
Total P 7,095,417
Genesis Bonds
01/01/2014 5,311,400
12/31/2014 600,000 531,140 68,860 5,242,540
12/31/2015 600,000 524,254 75,746 5,166,794
140
Exodus Bonds
01/01/2014 1,881,000
12/31/2014 260,000 282,150 22,150 1,903,150
12/31/2015 260,000 285,473 25,473 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) 3,105,000
Add: PV of interest payments (P5,000,000 x 12% x 3.791) 2,274,600
Presentvalue of the investment bonds - 01/01/2014 5,379,600
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) (31,020)
Accrued interest up to 7/1/2014 (P5,000,000 x 12% 6/12 ) 300,000
Purchase price - 7/1/2014 (C) 5,648,580
Question No. 2
Interest income - 2014 (P5,379,600 x 10% x 6/12) = P268.980 (B)
Question No. 3
Fair value date of reclassification 5,121,400
Less: Carrying amount 12/31/2015 or 01/01/2016 5,249,316
Loss on reclassification (B) (127,916)
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. A 5. C
141
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 2,140,000
Share in the Net income in 2014 (1.7Mx25%) 425,000
Share in the dividend (25% x 320,000) (80,000)
Understatement of depreciation (160,000/4 years) (40,000)
Balance end, 12/31/2014 (A) 2,445,000
Understatement of Plant and equipment 640,000

x Percent of interest ______ 25%
Understatement of Net asset acquired 160,000
Question No. 2
Fair value of investment, date of date of transfer (25,000 x P120) 3,000,000
Less: Carrying value of investment -12/31/2014 2,445,000
Unrealized gain - P&L (C) 555,000
(See Amortization table below):
01/01/2014 4,621,006
12/31/2014 400,000 462,101 (B) 62,101 4,683,107
12/31/2015 400,000 468,311 (C) 68,311 4,751,418
12/31/2016 400,000 475,142 75,142 4,826,560
3,755,000
Question No. 5
Present value of the principal (5M x .751)
Add: Present value of interest payments (only principal will be
3,755,000
recovered) 4,751,418
Total Present value of future cash inflows (996,418)
Less: Amortized cost - 12/31/2015(see amortization table)
Impairment loss (C)
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. C 5. C
142
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 30,000,000
Less: Book value of net asset acquired (P120M x 20%) 24,000,000
Excess of cost over book value 6,000,000
Less: Overvalued depreciable asset (P6M x 20%) 1,200,000
Goodwill (A) 4,800,000
Question No. 2
Dividends declared and paid 5,000,000
Multiply by: Percentage of ownership ____ 20%
Dividends Revenue (C) 1,000,000
Question No. 3
Share in net income (P8M x 20%) 1,600,000
Less: Amortization of Undervalued valued asset (see below) 200,000
Adjusted net investment income (A) 1,400,000
Amortization of Undervalued asset Depreciable Asset

Divide by: Average remaining useful life Amortization of 1,200,000
Undervalued valued asset _______ 6
200,000
Question No. 4
Cost of Investment
Add: Net investment income (see no. 3) 30,000,000
Less: Dividends received (P1 x 1M shares) 1,400,000
Carrying value -12/31/2015 (A) 1,000,000
30,400,000
Question No. 5
Investment using Fair Value (P32 x 1,000,000) = P32,000,000 (D)
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. D
PROBLEM 16-2
Question No. 1
Cost of Investment (P3.9M + 100,000) 4,000,000
Less: Book value of net asset acquired (P12M x 25%) 3,000,000
143
Chapter 16: Investment in Associate Over or (under)valued asset:
Inventory [(P600,000 - P400,000) x 25%] (50,000)
Machinery [(P3,000,000 - P1,500,000) x 25%] (375,000)
Question No. 2
Add: Amortization of Overvalued valued asset (see below) 87,500
Adjusted net investment income (A) 1,087,500
Amortization of Overvalued asset: 2015 2016

Inventory (50,000)
Machinery (375,000) (375,000)

Divide by: Remaining life 10 10
Amortization of overvalued machinery (37,500) (37,500)
2015 2016
Net income of the associate 4,000,000 5,000,000
Multiply by: Percentage of ownership 25% 25%
Share in the net income 1,000,000 1,250,000
Dividends declared and paid
1,000,000 1,400,000
Multiply by: Percentage of ownership
25% 25%
Dividends received 250,000 350,000
Question No. 3
Less: Dividends received (P1M x 25%) 250,000
Carrying value -12/31/2015 (C) 4,837,500
Question No. 4
Add: Amortization of Overvalued valued asset (see no. 2) 37,500
Adjusted net investment income (B) 1,287,500
Question No. 5
Carrying value - 01/01/2016 4.837.500
Add: Net investment income (see no. 4) 1.287.500
Less: Dividends received (P1.4M x 25%) 350,000
Carrying value -12/31/2016 (B) 5,775,000
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. B 5. B
144
PROBLEM 16-3 Investment in Associate with Inventories, Machinery and Land -
Land Was Subsequently Sold
Question No. 1
Cost of Investment 4.0. 000
Less: Book value of net asset acquired (P12M x 25%) 3.0. 000
Over or (under)valued asset
Inventory (P200,000 x 25%) (50,000)
Machinery (P1,500,000 x 25%) (375,000)
Land (P600,000 x 25%) 150,000
Amortization of Over (Under) valued asset 2015 2016

Inventory (50,000)
Machinery (375,000) (375,000)

Divide by: Remaining life 10 10
Amortization of Under (over) valued asset (37,500) (37,500)
Land - 150,000
2015 2016
Net income of the associate 4,000,000 5,000,000
Share in the net income 1,000,000 1,250,000
Dividends declared and paid
1,000,000 1,400,000
Multiply by: Percentage of ownership
25% 25%
Dividends received 250,000 350,000
Question No. 2
Add: Amortization of Overvalued valued asset (see table above) 87,500
Adjusted net investment income (C) 1,087,500
Question No. 3
Less: Dividends received (P1M x 25%) 250,000
Carrying value -12/31/2015 (C) 4,837,500
Question No. 4
Less: Net Amortization of Undervalued valued asset (see no. 1) 112,500
Adjusted net investment income (B) 1,137,500
Question No. 5
145
Chapter 16: Investment in Associate 4.837.500
Carrying value - 01/01/2016
Add: Net investment income (see no. 4) 1.137.500
Less: Dividends received (P1.4M x 25%) 350,000
Carrying value -12/31/2016 (E) 5,625,000
SUMMARY OF ANSWERS:
1. A 2. C 3. C 4. B 5. E
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 investee’s preference
dividends, whether or not such dividends are declared.
Net income 600,000

Less: Preference dividend (10% x 1,000,000) (100,000)
Net income to ordinary shares 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
Net income to ordinary shares P1,600,000
Multiply by: Percentage of ownership ______ 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
Add: Net investment income (see no. 1) 300,000
Less: Dividends received -
Carrying value-12/31/2015 (A) 5,300,000
CASE NO. 2
Question No. 1
Less: Total actual preference dividends declared 450,000
Net income to ordinary shares P1,550,000
Multiply by: Percentage of ownership ______ 25%
Less: Amortization of undervalued asset (800,000/8) 100,000
146
(D) 287,500
Net investment income

Question No. 2
Carrying value-12/31/2015 (B) 5,287,500
CASE NO. 3
Question No. 1
Multiply by: Percentage of ownership _______ 25%
Less: Amortization of undervalued asset (800,000/8) ____ 100,000
Net investment income (E) ____ 400,000
Although the answer should be P400,000, the next best possible answer is P500,000.
Question No. 2
Carrying value-12/31/2015 (C) 5,400,000
SUMMARY OF ANSWERS:
CASE NO. 1 CASE NO. 2 CASE NO. 3
1. A 2. A 1. D 2. B 1. 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 2,200,000
Less: Carrying value (Fair value - 12/31/2015) 2,500,000
Unrealized loss - P&L (B) (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)
147
Fair value of previously held interest 2,200,000
Total cost of investment 5,275,000
Less: Book value of net asset acquired 3,500,000
Excess of attributable to machinery 1,775,000
Divide by: Remaining life 8
Amortization of Undervalued asset 221,875
Net income of the associate - 2017 1,500,000

Multiply by: Percentage of ownership (10% + 15%) ___ 25%
Share in the net income 375,000
Dividends declared and paid 550,000
Multiply by: Percentage of ownership 25%
Dividends received 137,500
Question No. 4
Share in net income 375,000
Less: Amortization of Undervalued asset (see table above) 221,875
Adjusted net investment income (B) 153,125
Question No. 5
Less: Dividends received Carrying value - 137,500
12/31/2015 (B) 5,290,625
SUMMARY OF ANSWERS:
1. B 2. E 3. A 4. B 5. B
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) P2,600,000
Less: Dividend income (5 x 40,000) 200,000
Net selling price 2,400,000
Less: Carrying value (2,500,000/40,000x40,000) 2,500,000
Loss on sale (A) (P100,000)
Question No. 2
Consideration received P2,600,000
Less: Dividend income (5 x 40,000) 200,000
Less: Carrying value [6M-(P5 x 100,000)/100,000] x 40,000) 2,200,000
Gain on sale (B) P200,000
148
Question No. 3 ___________
Fair value (P70 x 60,000) (A) P4,200,000
Question No. 4
Cost of Investment - 01/01/2015 1,200,000
Add: Net investment income - 2015 (2,500,000x30%) 750,000
Less: Dividends received -2015 (30% x 1,000,000) 300,000
Carrying value - 12/31/2015 1,650,000
Add: Net investment income - 2016 (3,000,000x30%) 900,000
Less: Dividends received -2016 (30% x 1,600,000) 480,000
Carrying value - 12/31/2016 2,070,000

Less Carrying amount (P2,070,000 x %) 1,035,000
Gain on sale (B) P165,000
Question No. 5
Investment in Kababain - FVTOCI:
Fair value (P75 x 15,000) 1.125.000
Less: Carrying amount 1.035.0 90,000
Investment in Passing Rate - FVTOCI:
Fair value (P70 x 60,000) 4.200.000
Less Cost (6M-(5 x 100,000))/100,000 x 60,000) Total 3.300.0 900,000
Unrealized Gain -OCI to SFP (C) P990,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. C
PROBLEM 16-8 Change From Equity to Cost Method

Question No. 1
Add: Net investment income [(1.8M-840,000) x 20%] 192,000
Less: Dividends received (P100,000 + P100,000) 200,000
Carrying value-12/31/2015 (B) 3,992,000
Note:
S 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). S The P1.8M net
income was for a period of 12 months ending December 31.
Question No. 2
Sales price (P25 x 50,000) 1,250,000
Carrying value of shares (P3,992,000 x 50,000/200,000) 998,000
Gain on sale of investment (B) 252,000
149
Question No. 3
Fair value of retained investment (P25 x 150, 000) 3,750,000
Less: Carrying amount of retained investment (P3,992,000 x 150,000/200,000)
2,994,000
Gain on reclassification to P&L (C) 756,000
Question No. 4
Fair value, Dec. 31, 2016 (P30 x 150,000) 4,500,000
Fair value, Jan. 1, 2016 (P25 x 150,000) 3,750,000
Unrealized gain, Dec. 31,2016 (B) 750,000
Question No. 5
Fair value, Dec. 31,2016 (P30x 150,000) (A) 4,500,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. B 5. A
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) 16,500,000
Add: Share of net income [(P7,200,000 - P3,360,000) x 25%] 960,000
Less: Dividends received (P420, 000 x 2) (840,000)
Investment balance, December 31, 2015 (A) 16,620,000
Question No. 2
Sales price (68 x 100,000) 6,800,000
Less: Carrying value of shares (P16,620,000 x 100,000/250,000) 6,648,000 Gain on
sale of investment 152,000
Fair value of retained investment (P69 x 150, 000) 10,350,000

Less: Carrying amount of retained investment (P16,620,000 x
150,000/250,000) 9,972,000
Gain on reclassification to P&L 378,000
Total Gain (152,000+378,000) (C) 530,000

Question No. 3
Fair value, Dec. 31, 2016 (P70 x 150,000) 10.500.000
Fair value, Jan. 1, 2016 (P69 x 150,000) 10.350.0
Unrealized gain, Dec. 31,2016 - OCI (B) 150,000
150
Question No. 4
Fair value, Dec. 31, 2015 (P70x 150,000) (D) 10,500,000
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. D
PROBLEM 16-10 Associate Having Heavy Losses

Original cost 1,400,000
Cash advances 400,000
Total interest 1,800,000
Net loss from 2015 to 2017 (40% x 4,000,000) (1,600,000)
Carrying amount of investment - 12/31/2017 200,000
Share in net loss of 2018 (40% x 800,000) 320,000
Loss to be reported in 2018 should be equal to the investment balance only (C)
200,000
PAS 28, paragraph 29, provides that if under equity method an investor’s 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

2015 2016
Net income 1,000,000 1,500,000
Share in the net income before adjustment 250,000 375,000
Less: Unrealized profit on downstream sale of
inventory (30,000) 30,000
Share in the net income after adjustment 220,000 405,000
(B) (D)
PROBLEM 16-12 Upstream Sale of Inventory

2015 2016
Net income 1,000,000 1,500,000
Less: Unrealized profit on upstream sale of
inventory (9,000) 9,000
(B) (D)
151
PROBLEM 16-13 Downstream Sale of Depreciable Asset Note to professor:
Change Josiah
Chapter 16: to Eldon.
Investment in Associate
2015 2016
Net income 1,000,000 1,500,000
Less: Unrealized gain on downstream sale of PPE (160,000) 40,000
(B) (D)
PROBLEM 16-14 Upstream Sale of Depreciable Asset
Note to professor: Change Josiah to Stalion.

2015 2016
Net income 1,000,000 1,500,000
Less: Unrealized gain on upstream sale of PPE (40,000) 10,000
(B) (D)
PROBLEM 16-15 Note to professor:
S However, it was sold by Myrah Company in 2012 should be 2016. S Josiah Company
is the associate.
Questions No. 1 & 2

2015 2016
Net income 2,000,000 3,000,000
Multiply by: Percentage of ownership Share in the 30% 30%
net income before adjustment Unrealized gain on 600,000 900,000
downstream sale of PPE Unrealized profit on (160,000) 40,000
upstream sale of inventory Unrealized profit on (30,000) 30,000
upstream sale of inventory Share in the net income - (45,000)
after adjustment 410,000 925,000
(C) (D)
Questions No. 3 & 4

Add: Net investment income - 2015 (see No. 1) 410,000
Less: Dividends received -2015 (30% x P800,000) 240,000
152
Chapter 16: Investment in Associate (E) 4,170,000
Carrying value -12/31/2015
Add: Net investment income - 2016 (see No. 2) 925.000
Less: Dividends received -2016 (30% x P1,200,000) 360.0
Carrying value -12/31/2016 (E) 4,735,000
Question No. 5
Add: Net investment income - 2015 (see No. 1) 410.0
Less: Amortization of Goodwill (P200,000 / 10) Less: 20,000
Dividends received -2015 (30% x P800,000) Carrying 240.0
value -12/31/2015 Add: Net investment income - 2016 4,150,000
(see No. 2) 925.0
Less: Amortization of Goodwill (P200,000 / 10) Less: 20,000
Dividends received -2016 (30% x P1,200,000) Carrying 360.0
value -12/31/2016 (C) 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. E 5. C
PROBLEM 16-16
Question No. 1
Cost P1,700,000
Less: Equity in net assets 1,400,000
Implied goodwill (A) 300,000
Question No. 2
Proceeds (2,500 xP13) P 32,500
Less: Carrying amount [(P60,000/6,000) x 2,500] 25,000
Gain on sale (A) ___ 7,500
Question No. 3
Proceeds (500 xP21) P 10,500
Less: Carrying amount [(P55,000/(2,000 x 110%)) x 500] 12,500
Loss on sale (A) ___ 2,000
Question No. 4
Proceeds (1,500 xP21) P 31,500
Less: Carrying amount [(P40,000/1,000) x 500] 20,000
Gain on conversion (C) 11,500
153
Question No. 5
Investment in Roque Corporation:
3/9 1,000 xP1.2 1,200
9/9 1,000 xP1.2 1,200
Investment in Ocampo Corporation:
6/30 (6,000-2,500) xP1 3,500
Total dividend income (A) _____ 5,900
Question No. 6
1/2/2016 Acquisition Cost Add: Share in net 1,700,000
income of associate (P1, Less: Dividends 200,000x30%) 360,000
(P.50 x 4 x 100,000) 12/31/2016 carrying 200,000
amount (A) P1,860,000
Question No. 6
Roque pref. (1,000 - 500) x P56 Roque 28,000
ordinary (1,500 x P20) 30,000 38,500
Ocampo (6,000 -2,500) x P11 Dagumboy Co. 37,400 (A) 133,900
(2,000 x 110% -500) x P22 12/31/2016
FVTOCI Balance
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. C 5. A 6. A
7. A
PROBLEM 16-17
Question No. 1 Solano: 253.000

Fair values (11,000x23) 250.0 3,000
Less: Cost
A. Castaneda 280,000
Fair values (20,000x14) 320,000 (40,000)
Less: Cost (B or D) (37,000)
Net unrealized loss
Question No. 2
Net Proceeds
75,000
Less: Carrying value (P3
x 20,000) 60,000
Gain on sale
(A) 15,000
Question No. 3
Zero, gain or loss on reclassification is recognized in the profit or loss. (D)
154
Fair value previously held interest (50,000 x 30) 1,500,000
Gain on reclassification-P&L 150,000
Question No. 4
Net investment income = July 1- Dec. 31 (30% x 900,000) (D) 270,000
Question No. 5
Fair value previously held interest (P3M / 20%x10%) 1,500,000
Add: Acquisition cost 3,000,000
Initial carrying amount - investment in associate 4,500,000
Add: Net investment income (see No. 4) 270,000
Less: Dividends declared (P2 x 150,000) 300,000
PROBLEM 16-18
Note to professor: The investment in associate was acquired on January 1,
Investment balance end (B) 4,470,000
SUMMARY OF ANSWERS:
1. BorD 2. A 3. D 4. D 5. B
2016 should be on January 1, 2015.
Question No. 1
Consideration received (P115 x 4,000) 460,000
Less: Dividend of the investment sold (P4 x 4,000) 16,000
Net Selling Price 444,000
Less: Carrying value of the investment sold (*985,000/10,000 x 4,000) 394,000
Gain on sale (B) 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) 5,625,000
Less: Carrying value of the investment sold (P10,400,000 x 1/2) 5,200,000
Beg. Balance of Investment in Associate 9,000,000
Add: Share in the net income of associate (25% x P10M) 2,500,000
Total 11,500,000
Less: Amortization (P1,000,000/10) 100,000
Dividends received (P20 x 50,000) 1,000,000
Ending balance of investment in associate - 12/31/2016 10,400,000
155
Question No. 3
Nil. (A)
S 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.
S 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.

Fair value Cost (UG) / UL
Rodolfo (P23x 20,000) 460.000 500.0 40.000
Boy-ot (P96 x 6,000) 576.000 *591,000 15.000
Gene (P14x 40,000) 560.0 640.0 80.000
Cleo (P225x 25,000) 5,625,000 5,625,000
Total 7,221,000 7,356,000 135,000
(A) (B)
* (985,000/10,000 x 6,000)
SUMMARY OF ANSWERS:
1. B 2. D 3. A 4. A 5. B
156
Chapter 18: Property, Plant and Equipment
CHAPTER 18: PROPERTY, PLANT AND EQUIPMENT

Note to professor:
Page Existing Data: Change to:
Credit to Machine M Credit to Machine A
685 Requirement No. 4: Sum of the Yeai rs' Digits
Also the accumulated depreciation as of Change 2016 to 2015.
December 31,2015 may...
686 Requirement No. 5: SYD acquired o n April 1,2015
12/31/2016: 12/31/2016:
Depreciation = 300,000 Depreciation = 325,000
Accumulated depreciation = Accumulated depreciation =
PROBLEM 18-1 Capitalizable Cost of Machinery625,000
700,000
Book value = 400,000 Machinery
Book value = 475,000 Others
Purchase price including VAT (1,568,000/1.12) 1,400,000
Cost of water device to keep machine cool. 8,000
Cost of safety rail and platform surrounding
machine 12,000
Installation cost, including site preparation and
assembling. 20,000
Fees paid to consultants for advice on acquisition
of the machinery. 13,000
Dismantling cost of the machine 10,000
Repair cost of the machine damaged while in the
process of installation - 5,000
18,000
Loss on premature retirement-old machine -
Other nonrefundable sales tax 13,000
Cost of training for personnel who will use the
machine - 25.000
48.000
Adjusted balances (A) 1,476,000
PROBLEM 18-2 Capitalizable Cost of Land, Building and Land

Improvements
Question No. 1
Purchase Price 925,000
Title Insurance 7,500
Legal fees to purchase land 5,000
Property taxes, January 1, 2015 -June 30,2015 15,000
157
Cost of grading and filling building site 45,000
Total Cost of the land (A) 997,500
Question No. 2
Cost of building construction 3,100,000
Interest on construction loan 60,000
Cost of razing old building on lot 42,500
Proceeds from sale of salvageable materials (6,000)
Total cost of the building (A) 3,196,500
Question No. 3
Cost of constructing driveway 400,000
Cost of parking lot and fencing 60,000
Total cost of the land improvements (B) 460,000
PROBLEM 18-3 Old Building Is Not To Be Demolished

Question No. 1
Allocated purchase price (4/10 x P11M) 4,400,000
Draining cost and filling the land. 33,000
Cost of grading and leveling the land 6,000
Broker’s fee on the land 6,500
Cost of option of the acquired land 8,000
Registration fees and transfer of title. 13,000
Mortgages, encumbrances on the land assumed by buyer. 13,500
Total cost of land (C) 4,480,000
Question No. 2
Allocated purchase price (6/10 x P11M) 6,600,000
Interest, liens and other encumbrances on the building assumed by the buyer.21,000
Payments to tenants of the building to induce them to vacate the premises. 50,000
Repairs and renovation costs before the building is occupied 66,400
Unpaid taxes on the building up to the date of acquisition 2,000
Legal Fees and other expenses incurred in connection with the
purchase of the building 8,000
Total cost of building (D) 6,747,400
Question No. 3
Cost of shrubs, trees, and other landscaping (C) 53,000
Real Property taxes on the land accrued after acquisition of P5,000 shall be treated as
expense.
PROBLEM 18-4 Acquisition on Cash Basis
Question No. 1
Cash paid 800,000
Commissions paid to brokers 80,000
Non-refundable sales taxes 40,000
158
Total cost 920,000
Multiply by: Ratio (200,000 / 500,000) 0.40
Allocated cost of the land (B) 368,000
Question No. 2
Total cost 920,000
Multiply by: Ratio (300,000 / 500,000) ______ 0^
Allocated purchase price 552,000
Demolition cost 60,000
Proceeds from sale of demolition scrap (15,000)
Total cost of the building (C) 597,000
PROBLEM 18-5 Acquisition on Account

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

Invoice Price 500,000
Multiply by: (1 - discount rate) 0.97
Additional cost:
Installation cost 50,000
Present value of estd. decommissioning and restoration cost 62,090
Total cost of the equipment (B) 597,090
Estimated decommissioning and restoration cost 100,000

Multiply by: Present value of 1 0.6209
Present value of estd. decommissioning and restoration cost 62,090
PROBLEM 18-7 Deferred Settlement Terms (With or Without Cash Price
Equivalent)
Question No. 1
Cash price equivalent (A) 800,000
Question No. 2
Principal 1,000,000
Multiply by: Present value of 1 0.7972
Cost of the equipment (B) 797,200
159
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 1,200,000
Add: Cash payment 200,000
Cost of equipment (D) 1,400,000
Question No. 2
Fair value of the asset given 1,200,000
Less: Carrying amount 800,000
Gain on exchange (B) 400,000
Question No. 3
Carrying amount of the asset given 800,000
Add: Cash payment 200,000
Cost of equipment (B) 1,000,000
Question No. 4
Zero, the transaction lacks commercial substance. (A)
PROBLEM 18-9 Trade-in Question No. 1

Cash price without trade in (A) 340,000
Question No. 2
Cash price without trade in 340,000
Less: Cash price with trade in 270,000
Trade in value 70,000
Less: Carrying amount 230,000
Loss on trade in (B) (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
160
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 4,000,000
Add: Direct cost 40,000
Total cost (B) 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 400,000
Demolition of existing building on site 75,000
Legal and other fees to close escrow 12,000
Less: Proceeds from sale of demolition scrap 10,000
Total cost (C) 477,000
Question No. 2
Purchase price 400,000
Legal and other fees to close escrow 12,000
Total cost (A) 412,000
161
PROBLEM 18-14 Specific Borrowings
Question No. 1
Loan received Multiply by: Interest rate Actual borrowing cost 1,000,000
Less: Investment income 20%
Capitalizable borrowing cost (B) 200,000
60,000
Loan received
Multiply by: Interest rate
Actual borrowing cost 1,000,000
Less: Investment income (60,000 x 4/12) 20%
Capitalizable borrowing cost (D) 200,000
20,000
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 Actual 1,000,000
borrowing cost Less: Investment income 1.2155
Capitalizable borrowing cost (C) 1,215,500
1,000,000
Question No. 4 215.500
60,000
Loan received
155.500
Add: Expenditures incurred on Jan. 1 Balance at Jan 1
Interest on surplus funds on June 1 (600,000 x 15% x 5/12)

Balance at June 1 1,000,000
400.000
Less: Expenditure incurred on June 1 Balance at December 31
600.000
Interest on surplus funds on December 31 (350,000 x 15% x
7/12) 37,500
600,000
Total interest on surplus funds
Actual borrowing cost 250.000
Less: Investment income (see above) 350.000
Capitalizable borrowing cost (C)
30,625
68,125
200,000
68,125
131,875
162
PROBLEM 18-15 Specific Borrowings - Expenditures Incurred Evenly
Question No. 1
Loan at January 1, 2015 1,000,000
Loan at December 31, 2015(1,000,000 - 800,000) 200,000
Average used during the year (1,000,000 + 200,000) /2 600,000
Total actual borrowing cost 200,000

Less: Interest on surplus funds (600,000 x 0.15 ) 90,000
Capitalizable borrowing cost (A) 110,000
Question No. 2
Average expenditures (800,000 /2 ) 400,000
Capitalizable borrowing cost (400,000 x 0.2 ) (C) 80,000
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: Change To:
701 Kendall borrowed P750,000 on a construction Change 2013 to 2015
loan at 12% interest on January 1, 2013. This loan Change 2014 to 2016
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 200.0 x 12/12 200,000
September 1, 2015 300.0 x 4/12 100,000
December 31, 2015 300,0 x 0/12 __________ 0
Average accumulated expenditure 1. (A) 300,000
Multiply by: Rate 12%
Capitalizable borrowing cost 2. (D) 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.
163
Question No. 3 & 4
Accumulated expenditures - 836,000 x 9/9 836,000
12/31/2015 (P800,000 + 36,000)
March31,2016 300,000 x 6/9 200,000
September 30, 2016 200,000 x 0/12 0
Average accumulated expenditure 3. (D) 1,036,000
Less: Specific borrowing 750,000
Excess attributable to general borrowing 286,000
Multiply by: Months outstanding 9/12
Capitalizable borrowing cost - general borrowings 19,305
Add: Specific borrowings (750,000 x 12% x 9/12) 67,500
Total capitalizable borrowing cost 4. (B) 86,805
PROBLEM 18-17 Specific Borrowing Used For General Purposes
Total expenditures 6,000,000

Divide by 2
Total 3,000,000
Less: Investment income (50,000 x 3/12) 12,500
Weighted average expenditures 2,987,500
Capitalizable borrowing cost (A) 298,750
PROBLEM 18-18 Different Depreciation Methods
Cost P3,300,000
Less: Residual value 300,000
Depreciable amount P3,000,000
Requirement No. 1 Straight Line

2015 (P3,000,000/5x3/12) 150,000
2016 (P3,000,000/5x12/12) 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
164
300,000
2015 (P60/unitx 5,000 units)
360,000
2016 (P60/unitx 6,000 units)
Requirement No. 4 Sum-of the Years' Digits

Sum-of-years-digits [5 x ((5+1)/2)] = 15
250,000
2015 (P3,000,000 x 5/15 x 3/12)
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 102,750
Less: Accumulated depreciation - 12/31/2014
[(P102,750 - P6,750) / 6 x 2) 32,000
Carrying value - 01/01/2015 Less: 70,750
Revised residual value Depreciable 4,500
amount Divide by: Remaining useful life 66.250
(7-2) ______ 5
Depreciation expense (B) 13.250
PROBLEM 18-20 Straight-Line

Cost (P300,000 + P8,000)
P308,000
Less: Residual value
10,000
Depreciable amount 298,000
Divide by: Useful life ______ 10
Depreciation expense (A) 29,800
165
PROBLEM 18-21 Composite Method
Salvage Depreciable Estd. Annual
Cost Value Amount Life Depreciation
Machine A 275,000 25,000 250,000 20 12,500
Machine B 100,000 10,000 90,000 15 6,000
Machine C 20,000 - 20,000 5 4,000
Total 395,000 35,000 360,000 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/unitx 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/hourx 15,000 hours) (C) 81,000
PROBLEM 18-25 Double Declining Balance
Depreciation rate (2/4) = 50%

Cost 18,000
Less: Accumulated depreciation
2014 (P18,000 x 50%) 9,000
2015 (P18,000 - 9,000 - P4,700) 1 4,300
Bookvalue-12/31/2015 (B) 4,700
1Maximum depreciation. The carrying amount should not be reduced below its
residual value.
166
PROBLEM 18-26 Double Declining Balance
Double declining rate (2/10) = 20%
2015 [(P480,000x20%x 12/12] 96,000
2016 [(P480,000-P90,000)x 20% x 12/12] (B) 76,800
PROBLEM 18-27 150% Declining Balance

150% declining rate (1.5/5) = 30%
2014 (P1,000,000 x 30%) 300,000
2015 [(P1,000,000 - 300,000) x 30%] 210,000
Accumulated depreciation -12/31/2015 (D) 510,000
PROBLEM 18-28 Sum of the Years' Digits

Sum-of-years-digits [5 x ((5+1)/2)] = 15
2015 [(P50,000 +100,000) x 4/15x12/12) (C) 36,000
PROBLEM 18-29 Component Depreciation

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

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

Original cost 5,000
Less: Salvage proceeds 600
Depreciation (B) 4,400
167
Cost 3.300.000
Less: Accumulated depreciation - 12/31/2014 [(73,300,000 -
P300,000) / 8 x 4] 1.500.000
Carrying value -12/31/2014 1.800.000
CASE NO. 1
Requirement No. 1
Less: Residual value 1,800,000
Depreciable amount
300.0 1,500,000
Divided by: Revised remaining useful life
2
Depreciation - 2015
750.000
Requirement No. 2
Less: Depreciation - 2015 1,800,000
Carrying value -12/31/2015 750,000
1,050,000
CASE NO. 2
Requirement No. 1
Less: Residual value 1,800,000
Divided by: Remaining useful life ( 8 - 4 ) 1,650,000
Depreciation - 2015 4
412,500
Requirement No. 2
Less: Depreciation - 2015 1,800,000
Carrying value - 12/31/2015 412,500
1,387,500
CASE NO. 3
Requirement No. 1
Less: Residual value
1,800,000
Depreciable amount
300.0 1,500,000
Multiply by: Fraction (SYD = 10)
Depreciation - 2015 4/10
600.000
Requirement No. 2
Carrying value -12/31/2014 1,800,000
Less: Depreciation - 2015 600,000
Carrying value - 12/31/2015 1,200,000
168
PROBLEM 18-33 Replacement Method

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

Let X = Net Fixed Asset at the end of 2014
Sales
Fixed asset turnover = :
Average Fixed Asset
__________ P1,480,000
= .5 (P320,000 + X)
__________ P1,480,000
4= P160,000 + .5x
P1,480,000 = P640,000 + 2x
X= P420,000 (C)
PROBLEM 18-35 Derecognition of PPE
Note to professor: Change Pine to Jeremy.

Insurance Proceeds
Less: Carrying value [P160,000 - (P20,000x 6/12)] 200,000
Gain on disposal (D) 150,000
COMPREHENSIVE PROBLEMS 50,000
PROBLEM 18-36
Question No. 1
Beg. Balance of the Land
Cash paid Mortgage
assumed Realtor's P 700,000
commission 2,500,000
Legal fees, realty taxes and documentation expenses Amount 4,000,000
paid to relocate persons squatting on the property Total Cost of 300,000
the Land (B) 50,000
100,000
Beginning balance of the Land Improvement
Cost of fencing property
Total cost of Land Improvement (A) P 10,000
110,000 P
120,000
169
Question No. 3
Beg. Balance of the Building P 900,000
Amount recovered from salvage of building (150,000)
Cost of tearing down an old building 120,000
Amount paid to contractor 2,000,000
Building permit 20,000
Excavation expenses 50,000
Architects' fees 50,000
Total cost of building (A) P2,990,000
Question No. 4
Beg. Balance of the Machinery P 980,000
Invoice cost of machinery 2,000,000
Freight, unloading 60,000
Customs duties 140,000
Allowances during installations 400,000
Total cost of machinery (B) P3,580,000
Question No. 5
Total cost of Land Improvement P 120,000
Total cost of building Total cost of 2.990.000
machinery Total depreciable 3.580.0
property (A) P6,690,000
Royalty payment on machines purchased in the amount of P120,000 should be
included as part of manufacturing overhead in the company's 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. B 5. A
PROBLEM 18-37 Specific and General Borrowings

WEIGHTED AVERAGE IN 2014
Months Average
Date Expenditures outstanding 36.0. 000
01/01/2014 3,000,000 12 42.0. 000
07/01/2014 7,000,000 6 12.0. 000
11/01/2014 6,000,000 2 90,000,000
Total 16,000,000 _______ 12
Divide by 7,500,000
Weighted average carrying amount
Specific borrowings (2,000,000 x 10%) 200,000
170
General borrowings:
Rate Principal Interest
14% 2,000,000 280,000
12% 18,000,000
Chapter 18: Property, Plant and Equipment 2,160,000
Total 20,000,000 2,440,000
Capitalization Rate (P2,440,000 / P20,000,000) = 12.20%
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost 200,000
Less: Investment income 13,000 187,000
General borrowings:
Weighted average carrying amount 7,500,000
Less: Principal amount of Specific borrowings 2,000,000
Weighted average related to General borrowings 5,500,000
Multiply by: Capitalization rate 12.20%
Multiply by: Months/12 1 671.000
Weighted average borrowing cost: vs. 858.0
Actual borrowing cost 2,640,000
Capitalizable borrowing cost (lower) (A) 858,000
WEIGHTED AVERAGE IN 2015

Months
Date Expenditures outstanding Average
01/01/2015 *16,858,000 8 134.864.0
07/01/2014 1,000,000 2 2,000,000
08/01/2014 2,000,000 1 2,000,000
Total 19,858,000 138.864.0 _
Divide by _________ 8
Weighted average carrying amount *Total expenditures in 2014 17,358,000
plus capitalized borrowing cost in 2014.

Specific borrowings
Actual borrowing cost (P2,000,000 x 10% x 8/12) 133,333
______ - 133,333
Less: Investment income General borrowings:
Less: Principal amount of Specific borrowings 17.358.0
Multiply by: Capitalization rate 15.358.0
Multiply by: Months/12 12.20%
Weighted average borrowing cost: 8/12 1,249,117
1,382,451
vs. Actual borrowing cost (2,640,000 x 8/12)
1,760,000 (A) 1,382,451
Capitalizable borrowing cost (lower)
171
Question No. 3
Actual borrowing cost - 2014 2,640,000
Less: Capitalizable borrowing cost - 2014 858,000
Interest expense (C) 1,782,000
Question No. 4
Actual borrowing cost - 2015 2,640,000
Less: Capitalizable borrowing cost - 2015 1,382,451
Interest expense (C) 1,257,550
Question No. 5
16,858,000
Total cost, 2014
3,000,000
Expenditures in 2015
1,382,451
Add: Capitalizable borrowing cost - 2015
21,240,451
Total cost of the building (B)
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. C 5. B
Total cash received 25,000,000

Divide by: Useful life of the building ________ 20
Income from government grant (D) 1,250,000
PROBLEM 18-38 Grants Related To Depreciable Assets
Question No. 1
The computation of the income from government grant is as follows:
Question No. 2
Cost of building 30,000,000
Divide by: Useful life of the building ________20
Depreciation (C) 1,500,000
Question No. 3
Cost of building 30,000,000
Less: Government grant 25,000,000
Total 5,000,000
Divide by: Useful life of the building 20
Depreciation (B) 250,000
Question No. 4
Cost of building 30,0, 0
Less: Depreciation - 2015 00
Carrying amount -12/31/2015 1,500,0
(D) 28,500,000
172
Question No. 5
Net cost of building 5,000,000
Less: Depreciation - 2015 250,000
Carrying amount-12/31/2015 (C) 4,750,000
SUMMARY OF ANSWERS:
1. D 2. C 3. B 4. D 5. C
Total fair value of the land 5,000,000

Divide by useful life of the building _______ 10
Income from government grant (B) 500,000
PROBLEM 18-39 Grants Related to Nondepreciable Assets
Question No. 1
The computation of the income from government grant is as follows:
Question No. 2
Cost of factory building 20,000,000
Divide by: Useful life of the building _______ 10
Question No. 3
Cost of factory building 20,000,000
Less: Government grant 5,000,000
Total 15,000,000
Divide by: Useful life of the building 10
Depreciation (D) 1,500,000
Question No. 4
Cost of factory building Less: 20,0, 0
Depreciation - 2015 Carrying 00
amount -12/31/2015 2,0, 00
0 (A) 18,000,000
Question No. 5
Net cost of factory building Less: 15,0, 0
Depreciation - 2015 Carrying 00
amount -12/31/2015 1,500,0
(B) 13,500,000
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. A 5. B
173
PROBLEM 18-40
Question No. 1
Cost of land and old building P1,200,000
Real estate broker's commission 72,000
Legal fees 12,000
Title insurance 36,000
Cost of land (C) P1,320,000
Question No. 2
Months
January 1,2014 April 1,000,000 12 12,000,000
1,2014 October 1, 500.000 9 4.500.000
2014 December 31, 800.0 3 2.400.000
2014 Total 900,000 0
3,200,000 18,900,000
Divide by ______ 12
Capitalization Rate (P840,000 / P8,000,000) = 10.50%
Specific borrowings
Actual borrowing cost (P1M x 12% x 12/12) Less: 120,000
Investment income General borrowings: ______ - 120,000
Multiply by: Capitalization rate 575,000
Multiply by: Months/12 10.50%%
Weighted average borrowing cost: 12/12 60,375
vs. Actual borrowing cost (P120,000 + P840,000) 180,375
Capitalizable borrowing cost (lower) 960,000 (A) 180,375
Question No. 3 Months

outstanding Average
Date Expenditures 8 35,043,000
January 1,2015 *4,380,375 4 2,400,000
May 1,2015 600,000
September 1, 2015 1,200,000
Total 3,200,000
37,443,000
Divide by
Weighted average carrying amount _______ 8
*(3,200,000+180,375+1,000,000) 4,680,375
174
Specific borrowings
Actual borrowing cost (P1,000,000 x 12% x 8/12) 80,000
Less: Investment income ________ ^ 80,000
General borrowings:
Multiply by: Capitalization rate 10.50%%
Multiply by: Months/12 8/12 257,626
Weighted average borrowing cost: 337,626
vs. Actual borrowing cost (P960,000 x 8 / 12) 640,000
Capitalizable borrowing cost (lower) (A) 337,626
Question No. 4
Fixed construction contract price P6,000,000
Plans, specifications, and blueprints 42,000
Architects' fees 164,000
Removal of old building 108,000
Interest capitalized during 2014 180,375
Interest capitalized during 2015 337,626
Cost of building (C) P6,832,001
Question No. 5
Interest cost in 2015:
Specific borrowing P 120,000
General borrowing 840,000
Total interest P 960,000
Less: Capitalizable borrowing cost in 2015 337,626.25
Interest expense in 2015 (C) 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) P 84,500
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. C 5. C
175
PROBLEM 18-41
Question No. 1
SYD [5x(5+1)/2] = 15
Date Fraction to be used
4/1/2013-4/1/2014 (5/15)
4/1/2014-4/1/2015 (4/15)
Depreciation expense:
Jan. 1 - 4/1/2015 (4/15 x 1,500,000 x 3/12) P100,000
Add: depreciation from 4/1 -12/31
Of the 1.2M (3/15 x 1,200,000 x 9/12) 180,000
Of the 300,000 (see computation below) 30,000 P
Total depreciation expense (A) 310,000
Depreciation exp. from (4/1/-12/31):

Cost P300,000
Less: Accumulated Depreciation
2013 to 2014 - 5/15 x 300,000 100,000
2014 to 2015 - 4/15 x 300,000) 80,000 P
Book Value, 4/1/2015 120,000 3
Divide by: Remaining Life (5-2) P 40,000
Total 9/12 P
Multiply by: Number of months Depreciation 30,000
Question No. 2
Accumulated depreciation, beg.
Add: Depreciation expense - 2015 P 800,000
Accumulated depreciation, 12/31/2015 (A) 310,000
P1,110,000
Question No. 3
Beginning balance of land
Add: Acquisition on Nov 4 P 550,000
Total cost of the land (B) 700,000
P1,250,000
Question No. 4
Direct cost
Fixed cost (15,000 x 25) P2,220,000
Variable cost (15,000 x 27) 375.000
Total Cost of building (A) 405.0
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%) P 272,864
Total depreciation (D) 600,000 P
872,864
176
Question No. 6
Cost of the machinery-beg P3,000,000
bal.
Add: Cost of the new P 356,000
machinery Invoice cost 18,000
Concrete embedding Wall 7,000
demolition Rebuilding of wall 19,000 400,000
Total cost of machinery (A) P3,400,000
Question No. 7
Depreciation ofmachinery
Depreciation of the beginning balance of machinery
Original Cost P3,000,000
Accumulated depreciation (3,000,000/20*10) P1,500,000
Less: Major overhaul 600,000 ____ 900,000
Adjusted book value P2,100,000
Divided by: Revised remaining life ( 2 0 - 1 0 + 5) ________ 15
Depreciation of the beginning balance of machinery P 140,000
Depreciation on the new machinery (400,000/20 x 6/12) 10,000
Depreciation of machinery (E) P 150,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. D 6. A 7. E
PROBLEM 18-42
Question No. 1
Selling Price Less Book value Cost P 52,000
Less: Accumulated Depreciation
Up to 1/1 From Jan. 1-May 1 P140,000
[(140,000 -12,400) x 5/55]* Gain
on sale of machinery D P 92,800
11,600 (104.400) 35,600
Note: No depreciation is recorded
(A) P 16,400
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 P 140,800
Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100] 26,880
Accumulated depreciation, R Dec. 31 (B) P 167,680
177
Question No. 3
Accumulated depreciation, I Jan 1 P 60,000
Add: Depreciation expense [(320,000-60,000-20,000)/10] 24,000
Accumulated depreciation,
Chapter 18: Property, I Dec.
Plant and 31
Equipment (C) P 84,000
Question No. 4
Accumulated depreciation, A Jan 1 P 64,000
Add: Depreciation expense (320,000-64,000) x 20% 51,200
Accumulated depreciation, A Dec. 31 (A) P 115,200
Question No. 5
Depreciation expense on
Machinery D (see computation P 11,600
in no. 1) 26,880
R (see computation in no. 2) 24,000
51,200
I (see computation in no. 3)
17,600
A (see computation in no. 4)
(D) P 131,280
N (88,000/20%)
Total depreciation expense
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. A 5. D

SYD 55
Cost of the office equipment 330,000

Multiply by: Used fractions (10/55+9/55+8/55+7/55) 34/55
Accumulated depreciation, December 31, 2015 (C) 204,000
Question No. 2
Machine 101 (70,000-7,000)/10 x 3/12 12,775
Machine 102 (80,000-8,000)/9 x 3/12 2,000
Machine 103 (30,000-3,000)/8 3,375
Total depreciation (C) 18,150
Machine 101
Cost 70,000
Less: Accumulated Depreciation,Jan 1, 2016 18,900
Bookvalue, January 1, 2016 51,100
Divide by: Remaining useful life (7-3) 4
Depreciation in 2016 12,775
Question No. 3
Office equipment 330,000
Less: Accumulated depreciation, Dec 31,2015 204,000
178
Book value, December 31,2015 126,000
Depreciation - office equipment 21,000
Depreciation of the building (200,000/5) 40,000
Total depreciation expense (C) 61,000
Question No. 4
Less: Book value of the Machine
Cost 80,000
(80,000-8,000)/9x 19/12 14,000 66,000
Loss on sale (A) (13,500)
Question No. 5
Cost of the office equipment 330,000
Accumulated depreciation, Dec 31, 2015 204,000
Depreciation expense in 2016 21,000 225,000
Book value, December 31,2016 (B) 105,000
SUMMARY OF ANSWERS:
1. C 2. C 3. C 4. A 5. B
PROBLEM 18-44
Question No. 1
Fair value 1,400,000
Legal fees 50,000
Remodeling cost 100,000
Total cost of building (C) 1,550,000
Question No. 2
Fair value of the asset received 1,200,000
Less: Cash paid 400,000
Fair value of the asset given 800,000
Less: Book value of the asset given
Cost 1,000,000
Less: Accumulated depreciation (1M/10 x 3.5) 350,000 650000
Gain on exchange (A) 150,000
Question No. 3
Office building No. 1 (940,000/7) 135,000
Office building No. 2 (1,000,000/10 x 6/12) 50,000
Office building No. 3 (1,200,000/4 x 6/12) 150,000
179
155,000
(C) 490,000
Factory building (1,550,000/10)
Total Depreciation expense 1,000,000
300.000
Cost of office building No. 1 Less:
700.000
Accumulated Depreciation Book
245.000
value
945.000
Add: Major improvements Total
Question No. 4
Income from government grant (1,400,000/10) (A) 140,000
Question No. 5
Total depreciable cost 945,000
Less: Subsequent depreciation 135,000
Book value (A) 810,000
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4. A 5. A

200,000
______ - 200,000
Date
Months
January 1,2015 July1,2015 November
Expenditures outstanding
4.500.0 Average
1, 2015 Total Divide by 2,000,000 24,000,000
2,000,000
12
Weighted average carrying amount 4.0. 000 6 24.0. 000
2.500.0
3.0. 000 2 12% 6,000,000
9,000,000 12/12 54.0.300,000
000
500,000
8
2,000,000 (D) 500,000
4,500,000
Specific borrowings
Actual borrowing cost (2M x 10% x 12/12)
Less: Investment income 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)
180
Question No. 2
Total expenditures - 2015 9.0. 000
Capitalized borrowing cost - 2015 500,000
Capitalized borrowing cost - 2016 (see computation below) 1,160,000
Total cost of building (C) 11,660,000
Months
January 1,2016 *9,500,000 12 114,000,000
July 1,2016 1,000,000 6 6,000,000
Total 10,500,000 120,000,000
Divide by 12
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)
Less: Investment income 200,000 200,000
General borrowings:
Multiply by: Capitalization rate 12%
Multiply by: Months/12 12/12 960,000
Weighted average borrowing cost: vs. Actual 1,160,000
borrowing cost 2,000,000
Capitalizable borrowing cost (lower) 1,160,000
Question No. 3
Total cost of building (A) 10,000,000
Borrowing cost under PFRS for SME is expensed outright.
Question No. 4
Cost of Machinery and Equipment 3,000,000
Multiply by: Fraction 3/15
Depreciation (A) 600,000
SYD is 15 years and useful life is 5 years.
181
Question No. 5
Depreciation - remaining delivery truck (see below) 114,000
Depreciation - overhauled delivery truck (see below) 30,000
Depreciation - new delivery truck (see below) ___ 24,000
Total depreciation on delivery truck (B) 168,000
Delivery truck:
1,152,000
Cost
432.000
Less: Accumulated depreciation Carrying value -12/31/2015 Less:
720.000
Carrying value of overhauled truck Balance
150.000
Divide by: Remaining useful life (8-3)
570.0
Depreciation on remaining delivery truck
______ 5
114.000
Overhauled delivery truck:
Cost
Less: Accumulated depreciation (P240,000 / 8 x 3)
P240,000
Carrying value -12/31/2015 Add: Overhauling cost Adjusted
90.000
carrying value - 01/01/2016 Divide by: Revised remaining useful
150.000
life (5 + 2)
60.000
Depreciation on overhauled delivery truck
210.0__
______ 7
New Delivery truck: 30,000
Invoice cost Freight
Installation and testing Total cost of new delivery truck Divide by:
Useful life Annual depreciation Multiply by: Number of months
used (July 26 to December 31) Depreciation on remaining delivery 400,000
truck 20,800
40.0
460,800
Question No. 6
_____ 8
Beginning balance 1,152,000
Add: Overhauling cost 57,600
60,000
Add: Cost of new delivery truck 5/12
460,800
Adjusted cost of delivery truck 24.000
1,672,800
Less: Accumulated depreciation (432,000 + 168,000) 600,000
Carrying value-12/31/2015 (C) 1,072,800
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. A 5. B 6. C
182
Chapter 19: Wasting Assets
CHAPTER 19: WASTING ASSETS
PROBLEM 19-1 Depletion with Change in Estimate

Question No. 1
Acquisition cost P164,000
Less: Estimated residual value -
Depletable cost of the natural resource P164,000
Divide by: Tons estimated to be extracted 20,000
Depletion per ton P8.20
Multiply by: Tons extracted - 2015 4,000
Depletion-2015 (B) P32,800
Question No. 2
Acquisition cost P164,000
Less: Accumulated depletion - 12/31/2015 32,800
Carrying value - 01/01/2016 131,200
Divide by: Tons estimated to be extracted 20,000
Depletion per unit P6.56
Multiply by: Tons extracted - 2016 8,000
Depletion-2016 (C) P52,480
PROBLEM 19-2 Depletion with Change in Estimate

8,000,000
Acquisition cost
12,000,000
Exploration cost
10,000,000
Intangible development cost
30,000,000
Total cost of the natural resource
900.0
Less: Estimated residual value
29,100,000
Total depletable cost of the natural resource
4,000,000
Divide by: Units estimated to be extracted
7.275
Depletion per unit
400.0
Multiply by: Units extracted from 2015 to 2017 Depletion
2,910,000
from 2015 to 2017
Question No. 1 30,000,000

Cost of natural resource 2,910,000
Less: Accumulated depletion - 12/31/2017 27.090.0
Carrying amount -12/31/2017 600,000
Less: Residual value 26.490.000
Depletable cost 500.0
Divide by: Revised remaining units 52.98
Depletion rate per unit 200.000
Multiply by: Units extracted - 2018 10.596.000
Depletion - 2018 (A)
183
Question No. 2
Cost of natural resource 30,000,000
Less: Accumulated depletion (P2,910,000 + P10,596,000) 13.506.000
Carrying amount-12/31/2018 (A) 16.494.000
PROBLEM 19-3 Depreciation of Movable and Immovable Equipment - Useful Life

of the Immovable Equipment is Shorter
Question No. 1
Exploration cost 6,000,000
Intangible development cost 5,000,000
Total cost of the natural resource 15,000,000
Total depletable cost of the natural resource 15,000,000
Divide by: Units estimated to be extracted 4,000,000
Depletion per unit 3.75
Multiply by: Units extracted - 2015 500,000
Depletion-2015 (A) 1,875,000
Question No. 2
Cost of the movable equipment 2,000,000
Divide by: Useful life in years _______ 10
Depreciation - 2015 (A) 200,000
Question No. 3
Cost of the movable equipment Divide by: Useful life in 1,000,000
______ 5
PROBLEM 19-4 Depreciation of Movable and Immovable Equipment - Life
200,000
years (shorter)
Depreciation - 2015 (A)
of the Wasting Asset is Shorter
Question No. 1
Exploration cost 6,000,000
Intangible development cost 5,000,000
Total cost of the natural resource 15,000,000
Total depletable cost of the natural resource 15,000,000
Multiply by: Units extracted - 2015 500,000
Depletion-2015 (A) 1,875,000
184
Question No. 2
Divide by: Useful life in years _______ 20.
Question No. 3
Cost of the movable equipment P1,000,000
Divide by: Units estimated to be extracted (shorter)* 4,000,000
Depreciation rate per unit P.25
Multiply by: Actual units extracted 500,000
Depreciation - 2015 (C) 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 5,000,000
Depreciation per unit 3
Multiply by: Actual units extracted from 2015 to 2017 620,000
Accumulated Depreciation - 12/31/2017 1,550,000
Question No. 1
Less: Accumulated depreciation - 12/31/2017 1,550,000
Bookvalue-12/31/2017 3,450,000
Divide by: Remaining useful life ( 1 5 - 3 ) 12
Question No. 2
Less: Accumulated depreciation - 12/31/2018 1,837,500
Bookvalue-12/31/2018 3,162,500
Divide by: Remaining units to be extracted 1,380,000
Depreciation per unit 2.29
Multiply by: Actual units extracted - 2019 150,000
PROBLEM 19-5 Liquidating Dividends

Accumulated profits -unappropriated 9,000,000
Add: Accumulated depletion 7,000,000
Total 16,000,000
Less: Capital Liquidated 800,000
Depletion in the ending inventory (P6 x 120,000) 720,000
Maximum Dividend (D) 14,480,000
185
PROBLEM 19-6
Question No. 1
Acquisition cost P9,075,000
Divide by: Tons estimated to be extracted 1,100,000
Depletion per ton P8.25
Multiply by: Actual tons extracted - 2016 Depletion - 2016 100,000
(D) 825,000
Question No. 2
1.925.000
Cost of Installation
Divide by: Tons estimated to be extracted Depreciation per 1.100.0
ton Multiply by: Actual tons extracted - 2016 Depreciation - 1.75
2018 (B) 100,000
175,000
Question No. 3
Cost of mining equipment Divide by: Useful life
Depreciation - 2016 (AorD) 4,400,000
_______ 8
550,000
Question No. 4
Acquisition cost
Less: Accumulated Depletion
Carrying value -12/31/2016 P9,075,000
Add: Additional development cost - 2017 825.0
Remaining depletable cost P8,250,000
Divide by: Estimated tons to be extracted 750.0
Depletion per ton P9,000,000
Multiply by: Tons extracted - 2017 1,000,000
Depletion - 2017 (C) P 9
150.0
Installation ((P1,925,000/1.1M) x 150,000 tons)
Mining equipment (P4,400,000/8)
Total depreciation expense (C) P 262,500
550,000 P
SUMMARY OF ANSWERS: 812,500
1. D 2. B 3. AorD 4. C 5. C
186
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 150,000,000
and intangible development cost Add: Estimated 8,000,000
decommissioning and restoration costs Initial cost (A) 8,196,161
166,196,161
Estimated restoration cost
Multiply by: Present value of 1 for four periods P 12,000,000
Present value of the restoration cost 0.683013455 P
8,196,161
Question No. 2
Total cost of the wasting assets 166,196,161
Divide by: Estimated units to be extracted 12,000,000
Multiply by: Units extracted 1,600,000
Depletion expense - 2015 (B) 22,159,488
Question No. 3
6,000,000
Cost of the movable equipment Divide by: Useful life
______ 20
300,000
Question No. 4
Divide by: Units estimated to be extracted (shorter) 12,000,000
Depreciation rate per unit 0.75
*Estimated useful life using output method (12,000,000 / 1,500,000) = 8 years
Question No. 5
Date Interest expense Present value
01/01/2015 8,196,161
12/31/2015 819,616 9,015,778
12/31/2016 901,578 (E) 9,917,355
12/31/2017 991,736 10,909,091
12/31/2018 1,090,909 12,000,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. E
187
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 120,000,000
intangible development cost Add: Estimated 6,000,000
decommissioning and restoration costs Initial cost (A) 6,355,181
132,355,181
Estimated restoration cost
Multiply by: Present value of 1 for four periods P 10,000,000
Present value of the restoration cost 0.635518078 P
6,355,181
Question No. 2
Total cost of the wasting assets 132,355,181
Divide by: Estimated units to be extracted 12,000,000
Question No. 3
6,000,000
Cost of the movable equipment Divide by: Useful life
_______ 6
1,000,000
Question No. 4
Divide by: Useful life _______ 5
Depreciation - 2015 (A) 1,800,000
Question No. 5
Date Interest expense Present value
01/01/2015 6,355,181
12/31/2015 762,622 7,117,802
12/31/2016 854,136 (E) 7,971,939
12/31/2017 956,633 8,928,571
12/31/2018 1,071,429 10,000,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. E
188
Chapter 20: Investment Property
CHAPTER 20: INVESTMENT PROPERTY

Note to professor:
Page Existing Data: Change to:
747 Solution to Requirement No. 1
Investment Property Cost
12/31/14- P2,700,000 12/31/14- P3,000,000
12/31/15- P2,550,000 12/31/15- P3,000,000
PROBLEM 20-1: Classification Issue
Item Owner-
occupied Investment
property Property Inventory Others Remarks
2) 1,260,000 Covered by PAS 11
6) 1,110,000
Derecognized since it
is leased out under a
finance lease
9) IP in the separate
2,100,000
FS
10) 530,000 Cannot qualify as
IP since it is not land
or building
11) 420,000 Not reported since
it is leased under
operating lease
2,160,000 7,740,000 450,000
1. (A) 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. A
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. C
Chapter 20: Investment Property
PROBLEM 20-8: Transfer from inventory to investment property - Fair value vs

Cost model
189
Question No. 3
P2,880,000. Fair value at the date of transfer. Don't deduct cost to sell.
PROBLEM 20-9: Derecognition of investment property - Fair value vs Cost Model

Question No. 2 (C)
190
CHAPTER 22: INTANGIBLE ASSETS
Chapter 22: Intangible Assets
PROBLEM 22-1 Research and Development Cost

R&D Others
Cost of activities aimed at obtaining new knowledge 700,000

Marketing research to study consumer tastes - 16,000
Cost of developing and producing a prototype model 23,000

Cost of testing the prototype model for safety and
environmental friendliness 80,000
Cost revising designs for flaws in the prototype model 15,000

Salaries of employees, consultants, and technicians
involved in R&D 120,000
Amount paid for conference for the introduction of
the newly developed product including fee of a model
hired as endorser 102,000
Advertising to establish recognition of the newly
developed product 43,000
Cost incurred on search for alternatives for materials,

devices, products, processes, systems or services 30,000
Cost of final selection of possible alternatives for a
newprocess 96,000
Periodic or routine design changes to existing products 2,500

Modification of design for a specific customer - 10,000
Cost of design, construction and operation of a pilot plant
that is not of a scale economically feasible for commercial
production 5,000
Cost of routine, seasonal, and periodic design of tools,
jigs, molds and dies 18,000
Cost of quality control during commercial production 32,000

Cost of purchased building to be used in various R&D
projects 1,000,000
Depreciation on the building described above 100,000 -
Personnel costs of persons involved in research and
development projects 41,200
Design, construction, and testing of preproduction
prototypes and models 96,000
Adjusted balances 1,306,200 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
(A)
191
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 (P110x 2,000) = P220,000 (D)

Cost ofthe Patent 300,000
Less: Amortization, 12/31/2014 (300,000/15 x 2) 40,000
Carrying value, 1/1/2015 260,000
Divided by: Remaining useful life (10 - 2) _______ 8
Amortization - 2015 (A) 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 2,000,000
Present value of installment receivable (22.91x 1,000,000) 2,910,000
Total cost of franchise (D) 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 2,250,000
Less: Accumulated depreciation (2,250,000 / 10*) 225,000
Carrying value-12/31/2015 (B) 2,025,000
PROBLEM 22-7 Goodwill
Net income Net assets
2013 1,000,000 3,900,000
2014 1,250,000 4,350,000
2015 1,950,000 4,500,000
Total 4,200,000 12,750,000
Divide by: Number of periods 3 3
Average 1,400,000 4,250,000
2Shorter of useful life of 10 years and extended lease term (12 - 3 + 6) = 15.
192
Average earnings (see table above) 1,400,000
Less: Normal earnings (4,250,000 x 20%) 850,000
Average excess earnings 550,000
Divide by: Capitalization rate 25%
Goodwill 2,200,000
Add: Fair value of net asset acquired 4,500,000
Purchase price (A) 6,700,000
PROBLEM 22-8 Internally Developed Computer Software Cost
Question No. 1
Other coding costs after establishment of technological
feasibility 1,000,000
Other testing costs after establishment of technological
feasibility 750,000
Costs of producing product masters 1,250,000
Total Software Cost (A) 3,000,000
Question No. 2
Duplication of computer software and training materials from product master
1,500,000
Packaging product 250,000
Total Inventoriable Cost (A) 1,750,000
Question No. 3
Total Software Cost 3,000,000
Multiply by: (10M / 40M) 25%
Amortization (A) 750,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A
193
PROBLEM 22-9 Website Cost

Question No. 1
Zero. All costs are charged to expense. (A)
Question No. 2
Obtaining a domain name 32,000
Installing developed applications on the web server 80,000
Stress testing 12,000
Designing the appearance (e.g. layout and color) of web pages 160,000
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information 60,000
Updating graphics and revising content 32,000
Adding new functions, features and content 12,000
Reviewing security access 36,000
Total intangible asset (B) 424,000
PROBLEM 22-10 Goodwill
6,800,000
Computation
2,000,000
Current Assets (6,000,000 + 800,000) 14.850.000
Investments (3.500.000)
PPE (13,000,000 + 1,850,000) (2.500.000)
Current liabilities 17.650.000
Noncurrent liabilities
Fair value of net asset acquired 17,650,000
10%
Fair value of net asset acquired Multiply 1,765,000
by: Normal rate of return Normal
earnings 9,000,000
(100,000)
Total earnings 600,000
Loss on sale (or Gain) on sale Bonus 9.500.0 _
(150,000 x 4years) _______ 4
Operating income Divide by: No. of years 2.375.000
Average earnings
Question No. 1
Average earnings 2,375,000
Less: Normal earning 1,765,000
Average excess earnings 610,000
Multiply by: Capitalization period 4_

Add: Fair value of net asset acquired 17,650,000
Purchase price (A) 20,090,000
194
Question No. 2
Average earnings Less: Normal earning Average excess 2.375.000
earnings Divide by: Capitalization rate 1.765.0
Goodwill (B) 610,000
Add: Fair value of net asset acquired 10%
Purchase price (B) 6.100.000
17.650.000
Question No. 3 23.750.000
Average earnings
Divide by: Capitalization rate
Purchase price (B) 2,375,000
Less: Fair value of net asset 8%
Goodwill (B) 29.687.500
17,650,000
Question No. 4 12.037.500
Average earnings
Less: Normal earning
Average excess earnings 2.375.000
Multiply by: Present value of ordinary annuity 1.765.0
Goodwill (C) 610,000
Add: Fair value of net asset acquired 3.0373
Purchase price (C) 1,852,753
17,650,000
SUMMARY OF ANSWERS: 19,502,753
1. A 2. B 3. B 4. C
PROBLEM 22-11
Question No. 1
Net Patent, January 1
Divide by: Remaining life (8years -2 years) Amortization(A)
336,000
Question No. 2 _____ 6
None, the trademark has an indefinite life. (B)
56,000
Question No. 3
Cost of noncompetition agreement (1,600,000 x 1/4)
Divide by: Useful life
Amortization expense (A)
400,000
_____ 5
80,000
195
Question No. 4
Purchase price 2,400,000
Less: Fair value of net assets acquired 1,600,000
Goodwill (carrying amount) (A) 800,000
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 384,000
Less: Accumulated Amortization (48,000 + 56,000) 104,000 280,000
Cost - Trademark (no amortization) (1.6Mx3/4) 1,200,000
Cost - Noncompetition agreement 400,000
Less: Accumulated Amortization (see no. 3) 80,000 320,000
Total carrying amount of the Intangible assets (B) 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. A 5. B
PROBLEM 22-12
Question No. 1
Legal cost 7,000
Payment of licenses to author excluding refundable purchase taxes (100,000-10,000)
90,000
Total cost of intangible assets (D) 97,000
Question No's 2, 3 and 5
Cost 97,000
Less: Amortization in 2015 (97,000/5 x 6/12) 9,700 No. 2 (C)
Carrying value, 12/31/2015 87,300 No. 3 (C)
Less: Amortization in 2016 (97,000/5 ) 19,400
Carrying value, 12/31/2016 67,900 No. 5 (D)
Question No. 4
General start-up cost 1,500
Amortization 9,700
Cost of printing 100
Advertising expense (20,000 x 6/12) 10,000
Total Expense (B) 21,300
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4. B 5. D
PROBLEM 22-13 Patent, Competitive, Related Patent
196
Question No. 1
Cost 500,000
Divide by: Remaining useful life 10
Amortization (C) 50,000
Question No. 2
Cost of the old Patent 500,000
Less: Accumulated Amortization (500,000 / 10x2) 100,000
Competitive Patent 240,000
Total 640,000
Divide by: Remaining life 8
Amortization (D) 80,000
Question No. 3
Less: Amortization 2013 80,000
Carrying value, 12/31/2013 (D) 560,000
Question No. 4
Carrying value, 12/31/2013 560,000
Add: Related patent 200,000
Total Carrying value, 1/1/2014 760,000
Divide by: Extended life 20
Amortization (A) 38,000
Question No. 5
Total Carrying value, 1/1/2014 760,000
Less: Amortization, 2014 38,000
Carrying value, 1/1/2015 = Loss (A) 722,000
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. A 5. A

Question No. 1
Acquisition cost 600,000
Costs of employee benefits arising directly from bringing the asset to its intended
condition 60,000
Professional fees arising directly from bringing the asset to its intended condition
13,000
Total cost of the trademark (C) 673,000
Question No. 2
None, the trademark has an indefinite life and is not subject to amortization.
(A)
Question No. 3
Amortization - Trademark -
197
Amortization - Customer list 60,000
Total amortization (B) 60,000
Question No. 4
Amortization - Trademark -
Amortization - Customer list 60,000
Amortization - Franchise 165,416
Total amortization (A) 225,416
Downpayment 400,000
Add: Present Value of notes payable (600,000 x .7118) 427,080
Cost of franchise 827,080
Question No. 5
Cost of trademark 673,000
Cost of customer list 300,000
Less: Accumulated Amortization 120,000 180,000
Cost of franchise 827,080
Less: Accumulated Amortization 165,416 661,664
Total carrying value (A) 1,514,664
SUMMARY OF ANSWERS:
1. C 2. A 3. B 4. A 5. A
PROBLEM 22-15
Question No. 1
Zero, organization cost is treated as outright expense.(A)
Question No. 2
Design costs 3,000,000
Add: Legal fees 300,000
Registration fee with Patent office 100,000
Total cost of trademark (B) 3,400,000
Question No. 3
Cash 400,000
Add Present value of the note (200,000x2.91) 582,000
Cost of Franchise (B) 982,000
Question No. 4
Cost (see no. 3) 982,000
Less: Amortization (982,000/20) 49,100
Carrying value, 12/31/2015 (A) 932,900
Question No. 5
Amortization of the franchise P49,100 (D)
198
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. A 5. D
PROBLEM 22-16
Question No. 1
Cost-Patent 136,000
Less: Amortization for the year (136,000/20) _____ 6,800
Carrying value of the Patent (C) 129,200
Question No. 2
Licensing agreement No. 1
Less: Amortization for 2years (100,000/20 x 2) 10,000
Total 90,000
Less: Reduction in value (90,000 x 60%) 54,000
Carrying value (B) 36,000
Question No. 3
Add: Amount credited for advance collection 2,000
Total cost 120,000
Less: Amortization (120,000/10) 12,000
Carrying value - Licensing agreement No. 2 (C) 108,000
Question No. 4
Carrying values:
Patent (see no. 1) 129,200
Licensing Agreement No. 1 (No. 2) 36,000
Licensing Agreement No. 2 (No. 3) 108,000
Total carrying value (C) 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) 5,000
Expenses capitalized:
Goodwill (16,000+32,000) 48,000
Organization cost 58,000
Overstatement of Retained earnings (A) 111,000
All the expenses above were understated thereby overstating the net income and
retained earnings.
199
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. C 5. A
PROBLEM 13-17
Question No. 1
Less: Unamortized portion of improvements debited Cost P75,000
Less: Amortization (P75,000 / 10 x 3) 22,500 _____ 52,500
Adjusted balance - 01/01/2015 497,500
Less: Amortization 2015 (P52,500 + P56,071) - see below 108,571
Carrying value-12/31/2015 (A) 388,929
Computation of amortization:
Adjusted balance - 01/01/2015 497,500
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) 105,000 105,000
CV of Patent with remaining UL of 7 years - 01/01/2015 392,500
Amortization of:
Patent with remaining UL of 2 years (105,000 / 2) 52,500
Patent with remaining UL of 7 years (392,500 / 7) 56,071
Total Amortization 108,571
Question No. 2
Franchise cost 50,000
Less: Amortization (50,000 / 5) 10,000
Carrying value 12/31/2015 (A) 40,000
200
Question No. 3
The amount to be reported as goodwill is the excess of cost over the fair value of net
asset acquired.
Chapter Goodwill
22: Intangible is not amortized but only subject to impairment
Assets
testing. Therefore, the amount to be reported is P200,000. (A)
Question No. 4
Other coding costs after establishment of technological
feasibility 240,000
Other testing costs after establishment of technological
feasibility 200,000
Costs of producing master for training materials 150,000
Total Software Cost (A) 590,000
Question No. 5
Completion of detailed program design 130,000
Costs incurred for coding and testing to establish technological feasibility 100,000
Total Cost charged to Expense (A) 230,000
Question No. 6
Amortization:
Patent (see No. 1) 108,571
Franchise (see No. 2) 10,000
Software cost - none yet -
Total Cost charged to Expense (C) 118,571
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A 6. C
PROBLEM 22-18 Inventories, PPE and Intangible Assets

Question No. 1
Unadjusted balance 4,300,000
Add: Goods purchased FOB Shipping Point 40,000
Adjusted balance (B) 4,340,000
Question No. 2
Total acquisition cost 4,000,000
Add: Mortgage assumed 800,000
Total cost of land and building 4,800,000
Multiply by: Percentage allocated to building ______ 80%
Total Purchase Price allocated to Building 3,840,000
Add: Remodeling Cost (300,000 - 20,000) 280,000
Total Cost of Building (A) 4,120,000
201
Question No. 3
Cost of improvement 500,000
Less: Accumulated depreciation (500,000/8 x 9/12) Carrying 46,875
value (B) 453,125
Question No. 4
Carrying value - 01/01/2015 432.000
Less: Amortization 2015 (432,000 / 3 years remaining UL) 144.000
Carrying value (C) 288.000
Question No. 5
Building (4,120,000-120,000)/50 Leasehold Improvements 80,000
(500,000/8 x 9/12) 46,875
Furniture and Fixtures Franchise (500,000 /10) 150.0
Licensing agreement 50,000
Total depreciation and amortization expense (A) 144.0
P470,875
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. C 5. A
202
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: Change to:
828 Additional credit to
Revaluation Surplus in No. 1 under
Proportional.
Elimination No. 1 Additional
Journal Entry
Debit: Accumulated depreciation
Credit: Equipment
830
Case No. 2
Appreciation = P900,000 Appreciation = P825,000
858 Illustration: Noncurrent Assets Held
for Sale -Single Asset
On January 1, 2015, Raycie-Fe Co. Change 2015 to 2016.
decided to sell a machinery with a cost
of
On July 1, 2017, Marga Co. sold the On July 1, 2017, Marga Co. sold the
862
machinery... investment in associate.
PROBLEM 23-1 Revaluation, No

Change in Estimate Note to
Historical Replacement
professor: Change 2017 to 2018 in Cost Cost Increase
Question No. 5 6,000,000 20,000,000 14,000,000
1.500.000 5.0. 000 3,500,000
Question No. 1 4.500.000 15.0. 000 10,500,000
Machinery
Accumulated depreciation (25%)
CA/DRC/RS
(A)
Carrying amount/Depreciated Replacement Cost/Revaluation Surplus
Question No. 2
Depreciated Replacement cost 15,000,000
Divide by: Remaining useful life (20-5) ______ 15
Depreciation Expense - 2016 (B) 1,000,000
203
Question No. 3
Revaluation surplus, beginning 10,500,000
Less: Piecemeal realization - 2016 (10,500,000 / 15) 700,000
204
Remaining revaluation surplus end of 2016 (B) 9,800,000
Question No. 4
15,000,000
Net Selling Price
Less: Carrying amount - 01/02/2018 Depreciated
15,000,000
Replacement Cost, date of revaluation Less:
2,000,000 13,000,000
Subsequent depreciation (P1M x 2 years) Gain on sale
(A) 2,000,000
Question No. 5
10,500,000
Revaluation surplus, beginning 1.400.000
Less: Piecemeal realization for two years (10,500,000 / 15 x 2) 9.100.000
Remaining revaluation surplus to R/E (A)
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A
PROBLEM 23-2 Revaluation, With Change in

Replacement
Useful Life Question No. 1 Cost Increase
20,000,000 11,000,000
Cost 5.0. 000 2,750,000
Machinery 9,000,000 15.0. 000 8,250,000
Accumulated depreciation (25%) 2,250,000
CA/DRC/RS 6,750,000
(A)
Question No. 2
Depreciated Replacement cost 15,000,000
Divide by: Remaining useful life ______ 25
Depreciation Expense - 2015 (B) 600,000
Question No. 3
Revaluation surplus, 01/01/2015 8,250,000
Less: Piecemeal realization - 2015 (8,250,000 / 25) 330,000
Remaining revaluation surplus end of 2015 (B) 7,920,000
Question No. 4
Net Selling Price 15,000,000
Less: Carrying amount - 01/02/2017
Depreciated Replacement Cost, date of revaluation 15,000,000
Less: Subsequent depreciation (P15M / 25 x 2) 1,200,000 13,800,000
Gain on sale (A) 1,200,000
205
Question No. 5
Revaluation surplus, beginning 8.250.0
Less: Piecemeal realization for two years (8,250,000 / 25 x 2) 660,000
Remaining revaluation surplus to R/E (A) 7.590.000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Replacement
Cost Cost Increase
Machinery 9,100,000 18,200,000 9,100,000
Less: Accumulated depreciation *2,250,000 **4,500,000 2,250,000
CA/DRC/RS 6,850,000 13,700,000 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 15,000,000

Depreciated Replacement cost Less: Revised residual 200,000
value Depreciable amount Divide by: Remaining useful life 13,500,000
Depreciation Expense - 2015 (B) _______ 25
540,000
Question No. 3
Revaluation surplus, 01/01/2015 Less: Piecemeal 6.850.0
realization - 2015 (6,850,000 / 25) 274,000
Remaining revaluation surplus end of 2015 (B) 6.576.000
Question No. 4
14,000,000
Net Selling Price
Less: Carrying amount - 01/02/2017 Depreciated
13,700,000
Replacement Cost, date of revaluation Less:
1,080,000 12,620,000 (A)
Subsequent depreciation (P540,000 x 2)
1,380,000
Gain on sale
Question No. 5
Revaluation surplus, beginning 6,850,000
Less: Piecemeal realization for two years (P274,000 x 2) 548,000
Remaining revaluation surplus to R/E (A) 6,302,000
206
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A
PROBLEM 23-4 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL

Question No. 1
Cost 1,200,000
Depreciable amount 1,000,000
Divide by: Estimated useful life _____ 10
Question No. 2
Zero. The company is using the cost model. (A)
Question No. 3
Cost 1,200,000
Less: Accumulated depreciation 100,000
Carrying amount 1,000,000
Less: Revised residual value 155.000
Depreciable amount 845.0 _
Divide by: Remaining useful life _______9
Depreciation - 2016 (E) 93,888
Question No. 4
Cost 1,200,000
Less: Accumulated Depreciation (100,000 + 93,888 + 93,888) 287,776
Carrying amount -12/31/2017 Less: Recoverable amount, date of 912.224
impairment Impairment loss (E) 600,000
312.224
Question No. 5
Recoverable amount
Less: Revised residual value
600,000
Depreciable amount
40.0 __
Divide by: Remaining useful life
560,000
Depreciation (C)
______ 7
80.000
SUMMARY OF ANSWERS:
1. A 2. A 3. E 4. E 5. C
207
CASE NO. 2 REVALUATION MODEL
Question No. 1
Cost 1,200,000
Divide by: Estimated useful life 10
Question No. 2
Recoverable amount/fair value - 01/01/2016 1,280,000
Less: Carrying amount - 01/01/2016 Machinery at cost 1,200,000
Less: Accumulated depreciation - 01/01/2016 100,000 1,100,000
Revaluation surplus - 01/01/2016 (D) 180,000
Question No. 3
Recoverable amount/fair value - 01/01/2016 1,280,000
Less: Revised residual value 155,000
Depreciation - 2016 (C) 125,000
Question No. 4
Recoverable amount, date of revaluation - 01/01/2018 1,280,000
Less: Subsequent depreciation for 2 years 250,000
Carrying amount - 01/01/2018 1,030,000
Less: Recoverable amount, date of impairment 600,000
Decrease in value 430,000
Less: Remaining revaluation
Revaluation surplus, date of revaluation 180,000
Less: Piecemeal realization for two years 40,000 140,000
Impairment loss (D) 290,000
Question No. 5
Recoverable amount 600,000
Depreciation (C) 80,000
SUMMARY OF ANSWERS:
1. A 2. D 3. C 4. D 5. C
PROBLEM 23-5 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL

Question No. 1
Cost 1,200,000
208
Question No. 2
Cost 1,200,000
Less: Accumulated Depreciation 100,000
Carrying amount - 12/31/2015 1,100,000
Less: Recoverable amount, date of impairment 900,000
Impairment loss (D) 200,000
Question No. 3
Depreciation (D) 90,000
Question No. 4
Recoverable amount - 01/01/2016 900,000
Less: Accumulated Depreciation - 12/31/2017 180,000
Carrying amount - 12/31/2017 720,000
Lower of:
Would have been carrying amount no impairment 875,555 Less: Recoverable amount -
01/01/2018 770,000 770,000
Gain on impairment recovery - P&L 50,000
The increase in fair value is recognized in P&L. (A)
Would have been carrying amount had been there no impairment:

Cost 1,200,000
Less: Depreciation
2015 100,00
0
2016 [(1,200,000 - 90,000 - 100,000) / 9) 112,222
2017 112,22
2
Would have beencarrying value - 12/31/2017 875,555
Question No. 5
Carrying value - 01/01/2018 770,000
Less: Revised residual value _________ -
209
Divide by: Remaining useful life (10-3) ________ 7
SUMMARY OF ANSWERS:
1. A 2. D 3. D 4. A 5. C
CASE NO. 2 REVALUATION MODEL

Question No. 1
Cost 1,200,000
Question No. 2
Cost 1,200,000
Carrying amount -12/31/2015 1,100,000
Less: Recoverable amount, date of impairment 900.000
Impairment loss (D) 200.000
Question No. 3
Depreciation (D) 90,000
Question No. 4
Recoverable amount - 01/01/2016 900,000
Less: Accumulated Depreciation - 12/31/2017 180,000
Carrying amount - 12/31/2017 720,000
Lower of:
Would have been carrying amount no impairment 875,555 Less: Recoverable amount -
01/01/2018 770,000 770,000
Gain on impairment recovery - P&L 50,000
The increase in fair value is recognized in P&L. (A)

Would have been carrying amount had been there no impairment:
Cost 1,200,000
Less: Depreciation
2015 100,00
0
2016 [(1,200,000 - 90,000 - 100,000) / 9) 112,222
2017 112,22
2
Would have beencarrying value - 12/31/2017 875,555
210
Question No. 5
Carrying value - 01/01/2018 770,000
Less: Revised residual value -
SUMMARY OF ANSWERS:
1. A 2. D 3. D 4. A 5. C
PROBLEM 23-6 Impairment of Intangible Assets
Question No. 1
Patent (200,000 / 10) 20,000
Computer software (100,000 x 60/120) 50,000
Total amortization (A) 70,000
The copyright and tradename is not amortized

because they have indefinite useful life.
Question No. 2 Copyright: 400.000

Carrying value 160.0 240,000
Less: Recoverable amount (80,000 / .05)
Tradename:
Carrying value 350.000
Less: Recoverable amount (15,000 / .05) 300.0 50,000
Goodwill:
Carrying value of reporting unit Less: Recoverable 3,000,000
amount (200,000 x 14.0939) 2,818,780 181,220
Total impairment loss (C) 471,220
Question No. 3
Carrying value of goodwill - 12/31/2015 900,000
Less: Allocated impairment loss of reporting unit 181,220
Carrying value of goodwill -12/31/2016 (B) 718,780
Question No. 4
Patent (P200,000 - P20,000) 180,000
Copyright (recoverable amount) 160,000
Tradename (recoverable amount) 300,000
Computer software (100,000 - 50,000) 50,000
Carrying value ofintangible assets - 12/31/2016 (A) 690,000
Note that goodwill is not reported as an intangible asset.
211
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A
PROBLEM 23-7 Amortization and Impairment of Intangible Assets Questions 1
and 2
Trademark - Unadjusted balance 1,430,000
Less: Unamortized cost of improvement that should have been expensed
Cost 150,000
Less: Accum. amortization (150,000/10 x 2) 30,000 120,000
Total 1,310,000
Add: Competitive patent debited to expense
Cost 135,000
Less: Accum. amortization (135,000/9 x 1) 15,000 120,000
Adjusted balance, January 1. 2016 1,430,000
Less: Amortization during the year
Patent with remaining life of 4 years *(160,000/4) 40,000 (2) A
Remaining patent (1,430,000-160,000)/15-7) 158,750 198,750
Carrying value ofthe Patent, 12/31/2016 (1) A 1,231,250
Computation of the P160,000:

Original cost 300,000
Less: Accumulated amortization (300,000/15) x 7 years)) 140,000
Remaining carrying value, 1/1/2016 160,000
The 7 years age is from January 1,2009 to January 1, 2016.
Questions 3
Carrying value of the trademark (no amortization) 800,000
Less: Recoverable amount (P75,000/10%) 750,000
Questions 4
Adjusted carrying value of the trademark is equal to its recoverable amount of P750,000.
(See no. 3) (B)
Questions 5
Downpayment 500,000
Add: Present value of the note 874,000
Total cost of the franchise 1,374,000
Divide by: Useful life 10
Amortization expense (D) 137,400
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. D
212
PROBLEM 23-8 Impairment of Cash Generating Unit
Question No. 1
Total carrying amount before impairment
105,000,000
Less: Fair value less costs to sell 85,000,000
Impairment loss 20,000,000
Less: Impairment loss allocated to Goodwill (B) 5,000,000
Impairment loss allocated to other assets 15,000,000
Questions No. 2 and 3 (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.

Carrying amount Allocated
before impairment Ratio Impairment loss
PPE (at cost model) 32,000,000 0.53 8,000,000 (D)
Patent 28.000.000 0.47 7,000,000 (D)
Total 60.000.000 15,000,000
SUMMARY OF ANSWERS:
D
1. B 2. A 3. A 4. D 5.
PROBLEM 23-9 Impairment and Reversal of Impairment of Cash

Generating Unit
Cash 100,000
Inventory 800,000
Accounts receivable 1,200,000
Plant and equipment 24,000,000
Less: Accumulated depreciation 10,400,000
Trademark 2,550,000
Patent 850,000
Goodwill 400,000
Total Carrying amount of CGU 19,500,000
Less: Value in use 16,300,000
Less: Impairment allocated to goodwill 400,000
Impairment loss allocated to other asset 2,800,000
213
Balance Balance
before Impairment after
Impairment Fraction Loss Impairment
Plant and equipment 13,600,000 13.6/17 (2,240,000) 11,360,000
Trademark 2,550,000 2.55/17 (420,000) 2,130,000
Patent 850,000 .85/17 (140,000) 710,000
Total 17,000,000 2,800,000 14,200,000
Balance Balance
after after
Impairment Reallocation Reallocation
Plant and equipment 11,360,000 (40,000) 11,320,000 1.(B)
Trademark 2,130,000 (7,500) 2,122,500 2. (B)
Patent 710,000 47,500 757,500 3. (B)
Total 14,200,000 - 3,520,000
Plant and Equipment:

Would have been BV, no impairment
Cost 24,000,000
Less: Accumulated depreciation (2.6M +300,000) 11,600,000 12,400,000
Actual Book value
Impaired value 11,320,000
Less: Subsequent depreciation 1,000,000 10,320,000
Maximum gain on reversal of impairment 2,080,000
Trademark:
Cost 2,550,000
Less: Subsequent amortization 120,000 2,430,000
Actual Book value

Impaired value 2,122,500
Less: Subsequent depreciation 112,000 2,010,500
Maximum gain on reversal of impairment 419,500
Patent:
Cost 850,000
Less: Subsequent amortization 80,000 770,000
Actual Book value

Impaired value 757,500
Less: Subsequent depreciation 60,000 697,500
Maximum gain on reversal of impairment 72,500
214
Balance
before Allocated
Reversal Fraction Gain Max gain
Plant and equipment 10,320,000 10320/13028 1,901,136 1,901,136
Trademark 2,010,500 2010.5/13028 370,372 370,372
Patent 697,500 697.5/13028 128,492 72,500
Total 13,028,000 2,400,000 2,344,008
Balance
Balance after
Max gain bef. Reall Reallocation reallocation
Plant and equipment 1,901,136 12,221,136 46,863 12,267,999
Trademark 370,372 2,380,872 9,130 2,390,001
Patent 72,500 825,992 (55,992) 770,000
Total 2,344,008 15,428,000 - 15,428,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. C 5. C 6. A
PROBLEM 23-10 Noncurrent Assets Held for Sale -Single Asset

Question No. 1
Cost 2,000,000
Less: Accumulated depreciation 800,000
Less: Initial amount recognized- lower of:
Fair value less cost to sell 1,100,000 1,100,000
Question No. 2
Zero. Non-current asset held for sale should not be depreciated. (A)
Question No. 3
Lower of:
FVLCTS 1,500,000 1,200,000
Less: Carrying amount at initial recognition 1,100,000
Gain on reversal - P&L (B) 100,000
Question No. 4
Net Selling Price (1,800,000 - 50,000) 1,750,000
Less: Carrying amount 1,200,000
215
Question No. 5 1,200,000 2,000,000
Cost 1,300,000 1,200,000
800,000
Accumulated depreciation (A) 1,200,000
Carrying amount
Less: Initial amount recognized- lower of:
Carrying amount Fair value less cost to sell
Impairment loss
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. D 5. A
PROBLEM 23-11 Noncurrent Assets held for Sale- Disposal Group

Question No. 3
Total carrying amount before impairment 64,600,000
Less: Fair value less costs to sell 55,000,000
Less: Impairment loss allocated to Goodwill (B) 5,000,000
Impairment loss allocated to other assets 4,600,000
Remaining revaluation surplus is
Questions No. 4 & 5
Carrying
amount as Allocated Revaluation
remeasured Decrease surplus
PPE (at cost model) 20,000,000 0.40 1.840.000
PPE (at revaluation model) 30,000,000 0.60 2.760.000 1,000,000
Total 50,000,000 4.600.000 1,000,000
Revaluation Carrying
surplus amount
Impairment after
loss impairment
PPE (at cost model) 1.840.000 18,160,000
PPE (at revaluation model) 1,000,000 1.760.000 27.240.000
Total 1,000,000 3.600.000 45.400.000
(P3,000,000 minus (P32M-P30M) 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. A 5. D
216
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.

Share in net income 10,000
(800,000 x 25%) (C) 190,000
Less: Amortization of undervalued asset Net investment income
Question No. 2
3,800,000
Beginning balance - 01/01/2016 Add: Net
190,000
investment income (see No. 1) Less:
37,500
Dividends received (150,000 x 25%) Carrying
(A) 3,952,500
amount -12/31/2016
Question No. 3
3,952,500
Carrying amount -12/31/2016 Less: Initial
amount recognized- lower of: Carrying
3,952,500
amount Fair value less cost to sell Impairment 4,000,000 3,952,500
loss (A) -
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) 4,200,000
Less: Carrying amount Gain on sale 3,952,500 (D) 247,500
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. A 5. D
PROBLEM 23-13
Question No. 1
Irrigation Equipment Freight in P 740,000
Installation cost 10,000
Total Machinery and Equipment, end 192,000
(A) P 942,000
217
Question No. 2
Trade in allowance 400,000
Book Value:
Cost 1,300,000
Less: Accum. Depreciation (P660,000+ P165,000) 825,000 475,000
Loss on trade in (B) 75,000
Question No. 3
Before addition [(P3,100,000 - P100,000)/20 x 3/12) 37,500
After addition: [(P3,100,000 - (P562,500 + P37,500) + 980,000 P200,000)/20) x 9/12)
123,000
Depreciation expense (B) 160,500
Remaining life ( 2 0 - 4 + 4 ) = 2 0 years
Question No. 4
Turf cutter [{(P1,300,000 - P200,000)/5} x 9/12] +
{(P800,000 - P50,000)/6 x 3/12)}] P 196,250
Water desalinator [(P3,780,000 - P270,000)/10] 351,000
Irrigation equipment [(942,000/4) x 6/12] 117,750
Office building 160,500
Total Depreciation expense (B) P 825,500
Question No. 5
Fair value on initial revaluation Book value on initial P 3,780,000
revaluation:
Cost P 4,000,000
[(P4,000,000 - P200,000)/10 x 2) ( 760,000) 3,240,000
12/31/2016 Revaluation Surplus Less: Piecemeal realization in 2017 P 540,000
(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 Bookvalue:
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. B 5. A
218
PROBLEM 23-14
Question No. 1
Revalued amount - 01/01/2016 31,500,000
Divided by: Remaining useful life ( 2 0 - 6 ) ______ 14
Annual depreciation = P30,000,000/20 = P1,500,000 Age of

the building = P9,000,000/P1,500,000 = 6 years
Question No. 2
Revaluation
Cost Fair value Surplus
Land P 5,000,000 P 7,000,000 P 2,000,000
Building 30,000,000
Accum. Depreciation ( 9,000,000)
Book value P21,000,000 31,500,000 10,500,000
Total Revaluation surplus, Jan. 1 Less: P12,500,000
Excess of depreciation on revalued amt.
over the cost Depreciation on revalued
amount(no. 1) Depreciation on cost Total P 2,250,000
Revaluation surplus, Dec. 31 1,500,000 750,000
(B) P11.750.000
Question No. 3
Annual depreciation rate (200%/2) = 100%
Cost P 600,000
Book value 300,000
Less: Salvage value 60,000
Maximum depreciation (B) P 240,000
Question No. 4
Cost 900,000
Divided by: Useful life ______ 9
Annual depreciation (D) P 100,000
Question No. 5 D
Cost P 900,000
Less: Accumulated Depreciation (300,000 +100,000 (no. 4) 400,000
Book value, Dec. 31 500,000
Less: Recoverable amount - value in use (125,000 x 3.60) 450,000
Impairment loss (B) P 50,000
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. B
219

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APPLIED

DARRELL JOE O. ASUNCION, MBA, CPA

This “Teacher's Manual” should be used solely by the teacher

If you have comments, queries or suggestions, please do not

Thanks and God bless.

Darrell Joe O. Asuncion, MBA, CPA

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 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

Sales on Account 300,000

Total 565,000 565,000

Purchase on Account 165,000

Total 149,500 149,500

Total 253,150 253,150

Beg. Balance Balance end

Total 160,000 160,000

Total 49,000 49,000

Beg. Balance 14,500 I 3,700 Balance end

Total 2,395,000 2,395,000

Total 2,395,000 2,395,000

Total 2,415,000 2,415,000

Total 4,360,000 4,360,000

Total 2,675,000 2,675,000

Total 1,500,000 1,500,000

Gross purchases Less: 650.000

Total 500,000 500,000

Total 600,000 600,000

Total 1,778,000 1,778,000

PROBLEM 5-10 Comprehensive

Total 1,659,000 1,659,000

Sales on account 1,535,000

Total 1,616,000 1,616,000

Purchases on account 1,234,000

Total 1,540,000 1,540,000

Total 222,600 222,600

PROBLEM 5-12 Comprehensive

Total 658,000 658,000

Accounts Payable trade

Total 67,000 67,000

Unadjusted operating expense 200,000

Total 89,000 89,000

Total 4,380,000 4,380,000

Purchases on account 2,480,000

Total 140,000 140,000

Total 280,000 280,000

Total 4,680,000 4,680,000

109 Omission of Deferred Income

110 Omission of Accrual of Expenses

110 Omission of Accrual of Revenues

111 Error affecting ending inventory (e.g.

112 Additional information # 4

113 Requirement No. 1

114 Requirement No. 1

117 Improper capitalizing of expense

When books are already closed, no necessary adjusting entries to be made.

If books are already closed, no necessary adjusting entries to be made.