Final Assessment in Intermediate Accounting 3

Instruction: Write the solution of the problems below (in good form):

Problem 1. The ledger of COVID19 Co. as of December 31, 2019 includes the following:
Assets
Cash 10,000
Trade accounts receivable (net of ₱10,000 credit balance in accounts) 40,000
Held for trading securities 80,000
Financial assets designated at FVPL 30,000
Investment in equity securities at FVOCI 70,000
Investment in bonds measured at amortized cost (due in 3 years) 60,000
Prepaid assets 10,000
Deferred tax asset (expected to reverse in 2020) 12,000
Investment in Associate 36,000
Investment property 46,000
Sinking fund 38,000
Property, plant, and equipment 100,000
Goodwill 28,000
Totals 560,000

How much is the total current assets?

Problem 2. The ledger of QUARANTINE Co. as of December 31, 2019 includes the following:
Liabilities
Bank overdraft 10,000
Trade accounts payable (net of ₱10,000 debit balance in accounts) 40,000
Notes payable (due in 20 semi-annual payments of ₱4,000) 80,000
Interest payable 30,000
Bonds payable (due on March 31, 2020) 70,000
Discount on bonds payable (30,000)
Dividends payable 10,000
Share dividends payable 12,000
Deferred tax liability (expected to reverse in 2020) 36,000
Income tax payable 44,000
Contingent liability 100,000
Reserve for contingencies 28,000
Totals 430,000

How much is the total current liabilities?

Problem 3. The ledger of STAY HOME Co. in 2019 includes the following:
Share capital 200,000
Share premium 40,000
Retained earnings, appropriated 36,000
Retained earnings, unappropriated 84,000
Revaluation surplus 60,000
Remeasurements of the net defined benefit liability (asset) – gain 30,000
Cumulative net unrealized gain on fair value changes of investment
in FVOCI 46,000
Effective portion of losses on hedging instruments in a cash
flow hedge 20,000
Cumulative translation loss on foreign operation 10,000
Treasury shares, at cost 26,000

How much is the total shareholders’ equity?

Problem 4. FRONTLINERS Co. was incorporated on January 1, 2019. The following were the transactions during the
year:
- Total consideration from share issuances amounted to ₱2,000,000.
- A land and building were acquired through a lump sum payment of ₱400,000. A mortgage amounting to
₱100,000 was assumed on the land and building.
- Total payments of ₱80,000 were made during the year on the mortgage assumed on the land and building, The
payments are inclusive of interest amounting to ₱10,000.
- Additional capital of ₱200,000 was obtained through bank loans. None of the bank loans were paid during the
year. Half of the bank loans required a secondary mortgage on the land and building.
- There is no accrued interest as of year-end.
- Dividends declared during the year but remained unpaid amounted to ₱60,000.
- No other transactions during the year affected liabilities.
- Retained earnings as of December 31, 2019 is ₱120,000.

a. How much is the profit for the year?

b. How much is the total assets as of December 31, 2019?

Problem 5. The ledger of PASS ALL Co. in 2019 includes the following:
Cash 200,000
Accounts receivable 400,000
Inventory 1,000,000
Accounts payable 300,000
Note payable 100,000

During the audit of PASS ALL’s 2019 financial statements, the following were noted by the auditor:
- Cash sales in 2020 amounting to ₱20,000 were inadvertently included as sales in 2019. PASS ALL recognized
gross profit of ₱6,000 on the sales.
- A collection of a ₱40,000 accounts receivable in 2020 was recorded as collection in 2019. A cash discount of
₱2,000 was given to the customer.
- During January 2020, a short-term bank loan of ₱50,000 obtained in 2019 was paid together with ₱5,000 interest
accruing in January 2020. The payment transaction in 2020 was inadvertently included as 2019 transaction.

How much is the adjusted working capital as of December 31, 2019?

Problem 6. ECQ Inc.’s accounts show the following balances:

Cost of goods sold ₱320,000

Insurance expense 75,000
Advertising expense 25,000
Freight-out 30,000
Loss on sale of equipment 7,000
Rent expense (one-half pertains sales department) 80,000
Salaries expense (1/4 pertains to non-sales personnel) 150,000
Sales commission expense 10,000
Bad debts expense 5,000
Interest expense 5,000

a. How much is the total distribution costs (selling expenses)?

b. How much is the total administrative expenses?

Problem 7. Entity A has the following information:

Inventory, beg. 80,000
Inventory, end. 128,000
Purchases 320,000
Freight-in 16,000
Purchase returns 8,000
Purchase discounts 11,200

How much is Entity A’s cost of sales?

Problem 8. The ledger of BAYANIHAN Co. as of December 31, 2019 includes the following:

15% Note payable 50,000

16% Bonds payable 100,000
18% Serial bonds 200,000
Interest payable -

Additional information:
- BAYANIHAN Co.’s financial statements were authorized for issue on April 15, 2020.
- The 15% note payable was issued on January 1, 2019 and is due on January 1, 2023. The note pays annual interest
every year-end. The agreement with the lender provides that BAYANIHAN Co. shall maintain an average current
ratio of 2:1. If at any time the current ratio falls below the agreement, the note payable will become due on demand.
As of the 3rd quarter in 2019, BAYANIHAN’s average current ratio is 0.50:1. Immediately, BAYANIHAN informed the
lender of the breach of the agreement. On December 31, 2019, the lender gave BAYANIHAN a grace period ending
on December 31, 2020 to rectify the deficiency in the current ratio. BAYANIHAN promised the creditor to liquidate
some of its long-term investments in 2020 to increase its current ratio.
- The 16% bonds are 10-year bonds issued on December 31, 2010. The bonds pay annual interest every year-end.
- The 18% serial bonds are issued at face amount and are due in semi-annual installments of ₱20,000 every April 1
and September 30. Interests on the bonds are also due semi-annually. The last installment on the bonds is due on
September 30, 2025.

How much is the total current liabilities?

Problem 9. Use the following information for the next four questions:
The nominal accounts of GCQ Co. on December 31, 2019 have the following balances:

Accounts Dr. Cr.

Sales ₱1,045,000
Interest income 80,000
Gains 30,000
Inventory, beg. ₱80,000
Purchases 300,000
Freight-in 30,000
Purchase returns 15,000
Purchase discounts 27,000
Freight-out 25,000
Sales commission 60,000
Advertising expense 35,000
Salaries expense 350,000
Rent expense 60,000
Depreciation expense 80,000
Utilities expense 40,000
Supplies expense 30,000
Transportation and travel expense 25,000
Insurance expense 10,000
Taxes and licenses 50,000
Interest expense 5,000
Miscellaneous expense 2,000
Loss on the sale of equipment 15,000

Additional information:
a. Ending inventory is ₱100,000.
b. Three-fourths of the salaries, rent, and depreciation expenses pertain to the sales department. The sales
department does not share in the other expenses.
 a. In a statement of comprehensive income prepared using the multi-step approach (function of expense
method), how much is presented as distribution costs?
b. In a statement of comprehensive income prepared using the multi-step approach (function of expense
method), how much is presented as administrative expenses?

Problem 10. Prepare a statement of cash flows using the following information:
Information on HOPE Co.'s financial position and performance as of December 31, 2019 and 2018 are presented
below.
HOPE Company
Statement of financial position
As of December 31, 2019
ASSETS 2019 2018
Current assets
Cash and cash equivalents 1,000,000 600,000
Held for trading securities 480,000 -
Accounts receivable – net 1,520,000 1,240,000
Rent receivable 100,000 40,000
Inventory 2,000,000 3,600,000
Prepaid insurance 200,000 160,000
Total current assets 5,300,000 5,640,000
Noncurrent assets
Investment in bonds 360,000 340,000
Buildings 10,000,000 4,000,000
Accumulated depreciation (800,000) (800,000)
Goodwill 360,000 400,000
Total noncurrent assets 9,920,000 3,940,000
TOTAL ASSETS 15,220,000 9,580,000

LIABILITIES AND EQUITY

Current liabilities
Accounts payable 480,000 320,000
Unearned rent 80,000 120,000
Insurance payable 240,000 180,000
Dividends payable 920,000 480,000
Income tax payable 60,000 140,000
Short-term loan payable - 200,000
Total current liabilities 1,780,000 1,440,000
Noncurrent liabilities
Bonds payable 4,000,000 4,000,000
Discount on bonds (380,000) (400,000)
Deferred tax liability 60,000 40,000
Total noncurrent liabilities 3,680,000 3,640,000
TOTAL LIABILITIES 5,460,000 5,080,000
Equity
Share capital 8,000,000 4,000,000
Retained earnings 1,760,000 500,000
TOTAL EQUITY 9,760,000 4,500,000
TOTAL LIABILITIES AND EQUITY 15,220,000 9,580,000
 HOPE Company
Statement of profit or loss
For the year ended December 31, 2019

Sales 20,000,000
Cost of sales (12,000,000)
Gross income 8,000,000
Rent income 1,800,000
Interest income 80,000
Insurance expense (400,000)
Bad debts expense (60,000)
Interest expense (400,000)
Loss on sale of building (160,000)
Unrealized gain on investment 80,000
Other expenses (4,800,000)
Profit before tax 4,140,000
Income tax expense (1,200,000)
Profit for the year 2,940,000

Additional information:
 During 2019, Hope purchased held for trading securities for ₱400,000. The fair value of the shares on December
31, 2019 is ₱480,000.
 The allowance for doubtful accounts has balances of ₱80,000 and ₱40,000 as of December 31, 2019 and 2018,
respectively.
 During 2019, Hope sold an old building with historical cost of ₱3,200,000 for ₱1,040,000.
 Hope inadvertently included depreciation expense in the “Other expenses” line item.
 There were no acquisitions or disposals of investment in bonds during the period.
 During 2019, Hope issued shares with an aggregate par value of ₱4,000,000 for ₱4,000,000 cash.