Ass in Ia 3 Act. 3

by Millan (2020)
Problem 4 (Activity 3) page 82

A.
a. No entry
b. No entry
c. Inventories 200,000
Accounts Payable 200,000
d. Investment property 100,000

Unrealized gain on investment property 100,000
Fair value - Dec. 31, 20x1 P 2,900,000

Fair value - Jan. 1, 20x1 2,800,000
Gain from increase in fair value P 100,000
e. Depreciation expense - Bldg. 405,000

Accumulated depreciation - Bldg. 405,000
Accumulated depreciation - Bldg. year 1 P 450,000

Divided by: Building 4,500,000
Double declining depreciation rate 10%
Building P 4,500,000
Less: Accumulated depreciation - Bldg. year 1 450,000
Carrying amount for 20x1 4,050,000
Multiplied by: Double declining depreciation rate 10%
Depreciation expense for 20x1 P 405,000
f. Depreciation expense - Equipt. 320,000

Accumulated depreciation - Equipt. 320,000
Sum of the years depreciation method n=5

Sum of years denominator (1+2+3+4+5) = 15
Equipment P 1,400,000
Less: Residual value 200,000
Depreciable amount 1,200,000
Multiplied by: Remaining life over sum of years 4/15
Depreciation expense for 20x1 P 320,000
g. Amortization expense 30,000

Accumulated amortization 30,000
Term or legal life of a patent 20 years

Less: Years held by previous owner 5 years
Remaining legal life 15 years (shorter)

Estimated useful life of the patent 17 years
Patent P 900,000
Divided by: Remaining legal life 15
Annual amortization expense 60,000
Multiplied by: July 1- Dec. 31 6/12
Amortization expense for 20x1 P 30,000
h. Inventory 108,000
Interest expense 108,000
Production cost of inventory P 1,800,000

Divided by: 2
Evenly incurred production cost 900,000
Multiplied by: Borrowing rate 12%
Capitalized borrowing cost P 108,000
i. Discount on bonds payable 952,000

Cash 952,000
Preset Value Factor Present Value

Principal P 8,000,000 Pv of 1 @14% n=4 0.59 P 4,720,000
Interest 800,000 Pv of OA @14% n=4 2.91 2,328,000
P 7,048,000
Issue price of the bonds P 8,000,000

Less: Present value of the bonds 7,048,000
Discount on bonds payable P 952,000
Interest expense 186,720

Discount on bonds payable 186,720
Date Payments 10% Interest expense 14% Amortization Present value

01/01/x1 P 7,048,000
12/31/x1 P 800,000 P 986,720 P 186,720 P 7,234,720
j. Utilities expense - sales department 180,000

Utilities expense - administration 180,000
Accrued liabilities 360,000
k. Income tax expense 720,684

Current tax asset 720,684
Income before tax P 2,402,280

Multiplied by: Income tax rate 30%
Income tax expense P 720,684
B.
Colleagues Co.
Statement of Financial Position
As of Dcember 31, 20x1
(amounts in Philippine Pesos)
ASSETS
Current Assets
Cash and cash equivalents (4) 5,998,000
Trade and other receivables (5) 2,980,000
Inventories 2,608,000
Current tax asset 29,316
Total current assets 11,615,316
Noncurrent assets
Property, plant and equipment (6) 5,925,000
Investment property 100,000
Long-term investments (7) 6,060,000
Intangible assets (8) 870,000
Total noncurrent assets 12,955,000
Total assets 24,570,316
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade and other payables (9) 2,850,000
Current portion of long-term debt (10) 400,000
Total current liabilites 3,250,000
Noncurrent liabilities
Noncurrent portion of long-term debt (10) 1,600,000
Bonds payable (11) 7,234,720
Total noncurrent liabilities 8,834,720
Total liabilities 12,084,720
Shareholders’ equity
Share capital 6,000,000
Retained earnings (12) 6,485,596
Total shareholders’ equity 12,485,596
Total liabilities and shareholders’ equity 24,570,316

C.
Colleagues Co.
Statement of Profit or Loss
For the year ended December 31, 20x1
Sales 16,800,000
Less: Cost of sales 7,200,000
Gross income 9,600,000
Add: Unrealized gain on investment property 100,000
Total Income 9,700,000
Less: Expenses
Distribution costs (13) 2,424,000
Administrative expenses (14) 3,755,000
Finance costs 1,118,720 7,297,720
Profit before tax 2,402,280
Income tax expense 720,684
Net income 1,681,596
Colleagues Co.
Statement of Other Comprehensive Income
For the year ended December 31, 20x1
Net Income 1,681,596

Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Unrealized gain on equity securities - FVOCI 260,000
Comprehensive Income 1,941,596
D.
NOTES TO THE FINANCIAL STATEMENTS
Note 4 - Cash and cash equivalents

Cash on hand 450,000
Cash in bank 4,800,000
Money market placements 1,700,000
Total cash and cash equivalents 5,998,000
Note 5 - Trade and other receivables

Accounts Receivable 3,900,000
Allowance for bad debts (920,000)
Total trade and otber receivables 2,980,000
Note 6 - Property, plant and equipment

Land 1,600,000
Building 4,500,000
Accumulated depreciation - Bldg. (855,000)
Equipment 1,400,000
Accumulated depreciation - Equipt. (720,000)
Total property, plant and equipment 5,925,000
Note 7 - Long-term investments

Land and building 2,800,000
Cash surrender value 860,000
Bond sinking fund 800,000
Investment in equity securities- FVOCI 1,600,000
Total long-term investments 6,060,000
Note 8 - Intangible assets

Patent 900,000
Accumulated amortization (30,000)
Total intangible assets 870,000
Note 9 - Trade and other payables

Accounts payable 1,090,000
Interest payable 1,040,000
Accrued liabilities 720,000
Total trade and other payables 2,850,000
Note 10 - Loans payable

Loans payable - current 400,000
Loans payable - noncurrent 1,600,000
Total loans payable 2,000,000
Note 11 - Bonds payable
Bonds payable 8,000,000
Discount on bonds payable (765,280)
Bonds payable - net 7,234,720
Note 12 - Retained earnings

Retained earnings 4,544,000
Comprehensive income 1,941,596
Total retained earnings 6,485,596
Note 13 - Distribution costs

Freight out 870,000
Salaries of sales personnel 870,000
Sales commissions 504,000
Utilities expense - sales department 180,000
Total distribution costs 2,424,000
Note 14- Administrative expenses

Salaries of administrative personnel 2,820,000
Depreciation expense - Bldg. 405,000
Depreciation expense - Equipt. 320,000
Utilities expense - administrative 180,000
Accumulated amortization 30,000
Total administrative expenses 3,755,000

Ass in Ia 3 Act. 3

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by Millan (2020)

Problem 4 (Activity 3) page 82

d. Investment property 100,000

Fair value - Dec. 31, 20x1 P 2,900,000

e. Depreciation expense - Bldg. 405,000

Accumulated depreciation - Bldg. year 1 P 450,000

f. Depreciation expense - Equipt. 320,000

Sum of the years depreciation method n=5

g. Amortization expense 30,000

Term or legal life of a patent 20 years

Remaining legal life 15 years (shorter)

Production cost of inventory P 1,800,000

i. Discount on bonds payable 952,000

Preset Value Factor Present Value

Issue price of the bonds P 8,000,000

Interest expense 186,720

Date Payments 10% Interest expense 14% Amortization Present value

j. Utilities expense - sales department 180,000

k. Income tax expense 720,684

Income before tax P 2,402,280

Total assets 24,570,316

LIABILITIES AND SHAREHOLDERS’ EQUITY

Total liabilities and shareholders’ equity 24,570,316

Net Income 1,681,596

Note 4 - Cash and cash equivalents

Note 5 - Trade and other receivables

Note 6 - Property, plant and equipment

Note 7 - Long-term investments

Note 8 - Intangible assets

Note 9 - Trade and other payables

Note 10 - Loans payable

Note 12 - Retained earnings

Note 13 - Distribution costs

Note 14- Administrative expenses

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