Ch 4 Solman 2012

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CHAPTER 4

THE STATEMENT OF COMPREHENSIVE INCOME

AND THE STATEMENT OF CHANGES IN EQUITY

PROBLEMS

4-1. (LAS VEGAS COMPANY)Capital, December 31, 2012

Total assets P1,218,000

Less total liabilities 276,000 P942,000

Capital, December 31, 2011Total assets P 970,000

Less total liabilities 202,000 768,000

Increase in capital P174,000Withdrawals by the owner 250,000

Additional investments by the owner (100,000)

Profit P324,000

4-2. (BELLAGIO TRADING COMPANY)Debit changes

Increase in assets P600,000

Decrease in liabilities 250,000 P850,000Credit changes

Increase in share capital P400,000

Increase in share premium 125,000 525,000

Increase (decrease) in retained earnings P325,000Dividends 120,000

Profit for the year P445,000

4-3. (VENETIAN COMPANY)

Raw material purchases P430,000

Increase in raw materials inventory (15,000)Raw materials used P415,000

Direct labor 200,000Factory overhead 300,000

Total manufacturing costs P915,000

Increase in work in process inventory (20,000)

Cost of goods manufactured P895,000Decrease in finished goods 35,000

Cost of goods sold for 2008 P930,000

4-4. (MGM COMPANY)Cost of goods manufactured P2,720,000

Finished goods, beginning 380,000Finished goods, end (418,000)

Cost of goods sold P2,682,000Gross profit 962,000

Sales P3,644,000

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Chapter 4 – The Statement of Comprehensive Income

and the Statement of Changes in Equity

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4-5. (MANDALAY COMPANY)Let x = cost of sales

.30x = .18 sales

x = .18/.30 salesx = .60 sales

Therefore, 100% - 60% - 18% - 12% = 10%

Sales = 280,000/10%; Sales = 2,800,000Cost of sales = 60% x 2,800,000 = 1,680,000

Income tax is ignored.

4-6. (EXCALIBUR PRODUCTS)Excalibur ProductsIncome Statement

For the Year Ended December 31, 2012

Sales P895,000Cost of sales

Beginning inventory P126,000

Purchases 466,250

Ending inventory (189,500) (402,750)

Gross profit P492,250

Selling expenses (161,100)

General and administrative expenses (128,880)

Profit before income tax P202,270Income tax (60,681)

Profit P141,589

4-7. (LUXOR COMPANY)Requirement a (nature of expense method)

Luxor CompanyStatement of Comprehensive IncomeFor Year Ended December 31, 2012

Note Total

PROFIT OR LOSSNet sales revenue (11) P3,359,000

Rent revenue 105,000

Total revenues P3.464.000

Operating Expenses

Net purchases (12) 1,762,000

Increase in inventory (13) (105,000)Delivery expense 77,000

Advertising expense 170,000

Salaries and commissions (14) 502,000Depreciation expense (15) 241,000

Supplies expense (16) 75,000

Bad debts expense 27,000Insurance and taxes 85,000

Other operating expenses (17) 170,000

Total Operating Expenses 3,004,000

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Profit from Operations P460,000

Interest expense ( 37,000)

Profit before income tax from continuing operations P423,000Income tax expense 126,900

Profit from continuing operations P296,100

Discontinued operations, net of tax (18) (245,000)

Profit P 51,100OTHER COMPREHENSIVE INCOME

Unrealized Gains on Investments at fair value through other

comprehensive income, net of P24,000 income tax P 56,000 Actuarial Gains Taken to Equity, net of P12,000 income

tax 28,000

Total Other Comprehensive Income P 84,000

TOTAL COMPREHENSIVE INCOME P135,100

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

Note11 – Net sales revenueSales P3,529,000

Less sales discounts P 49,000

Sales returns and allowances 121,000 170,000

Net sales revenue P3,359,000

Note 12 – Net purchasesPurchases P1,730,000

Add freight-in 135,000

Total P1,865,000Less purchase discounts P41,000

Purchase returns and allowances 62,000 103,000

Net purchases P1,762,000

Note 13 – Increase in inventory

Inventory, December 31 P446,000Inventory, January 1 341,000

Increase in inventory P105,000

Note 14 – Salaries and commissions

Sales commissions and salaries P182,000Office salaries 320,000

Total salaries and commissions P502,000

Note 15 – Depreciation expense

Depreciation – Buildings and office equipment P145,000Depreciation – Store equipment 96,000

Total depreciation expense P241,000

Note 16 – Supplies expense

Store supplies expense P56,000

Office supplies expense 19,000

Total supplies expense P75,000

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Note 17 – Other operating expensesLoss on sale of equipment P 50,000

Loss from typhoon 120,000

Total other operating expenses P170,000

Note 18 – Discontinued Operations

Revenues P 900,000Expenses (1,050,000)

Profit (loss) before income tax P (150,000)

Income tax benefit 45,000

Profit (loss) from operations of discontinued operations P (105,000)

Loss on sale of assets, net of tax benefit of P60,000 (140,000)

Discontinued Operations P (245,000)

(function of expense method)

Luxor CompanyStatement of Comprehensive Income

For Year Ended December 31, 2012

Note TotalNet sales revenue (11) P3,359,000

Cost of goods sold (12) 1,657,000

Gross profit P1,702,000Other Operating Income

Rent Revenue 105,000

Total Income P 1,807,000

Operating Expenses

Selling Expenses (12) P581,000

General and Administrative Expenses (13) 596,000Other Operating Expenses (14) 170,000

Total Operating Expenses P1,347,000

Profit from Operations P460,000Interest expense ( 37,000)

Profit before income tax from continuing operations P423,000

Income tax expense 126,900

Profit from continuing operations P296,100Discontinued operations, net of tax (18) (245,000)

Profit P 51,100

OTHER COMPREHENSIVE INCOME

Unrealized Gains on Investments at fair value throughother comprehensive income, net of P24,000 income

tax P 56,000 Actuarial Gains Taken to Equity, net of P12,000 income

tax 28,000

Total Other Comprehensive Income P 84,000TOTAL COMPREHENSIVE INCOME P135,100

Notes to Financial Statements (after presenting notes for basis of presentation and summary

of significant accounting policies)

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Note 11– Net sales revenueSales P3,529,000

Less sales discounts P 49,000

Sales returns and allowances 121,000 170,000

Net sales revenue P3,359,000

Note 12 – Cost of goods soldInventory, January 1 P341,000

Purchases P1,730,000

Add freight-in 135,000

Total P1,865,000Less purchase discounts (41,000)

Purchase returns and allowances (62,000) 1,762,000

Cost of goods available for sale P2,103,000Less Inventory, December 31 446,000

Cost of goods sold P1,657,000

Note 13 – Selling expenses

Sales commissions and salaries P182,000Store supplies expense 135,000

Delivery expense 77,000

Advertising expense 170,000Depreciation expense – store equipment 96,000

Total selling expenses P581,000

Note 14 – General and Administrative expenses

Bad debts expense P27,000

Office supplies expense 19,000Insurance and taxes 85,000

Office salaries 320,000

Depreciation – buildings and office equipment 145,000

Total administrative expenses P596,000

Note 15 – Other operating expenses (continuing operations)Loss on sale of equipment P 50,000

Loss from typhoon 120,000

Total other operating expenses P170,000

Note 16 – Discontinued OperationsRevenues P 900,000

Expenses (1,050,000)

Profit (loss) before income tax P (150,000)


Profit (loss) from operations of discontinued operations P (105,000)

Loss on sale of assets, net of tax benefit of P60,000 (140,000)Discontinued Operations P (245,000)

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Requirement bLuxor Company

Statement of Changes in Equity

For the Year Ended December 31, 2012Ordinary

Share Reserves

Retained

Earnings Total

Balances, January 1 P700,000 P660,000 P1,785,000 P3,145,000Correction of prior year’s income due to

understated depreciation, net of

P54,000 income tax (126,000) (126,000)

Restated balances, January P700,000 P660,000 P1,659,000 P3,019,000Issuance of ordinary shares 100,000 40,000 140,000

Comprehensive Income 84,000 51,100 135,100Dividends declared (60,000) (60,000)

Balances, December 31 P800,000 P784,000 P1,650,100 P3,234,100

Reserves at January 1 included the share premium (P610,000) and unrealized gain on investments

carried at fair value through OCI (P50,000). The amounts may be reported in separate columns.

4-8. (TRUMP COMPANY)a.Revenues P5,000,000

Selling and Administrative Expenses 5,080,000

Disposal costs (75,000)Operating Profit (Loss) before income tax P(155,000)


Operating Profit (loss) P(108,500)

Fair value less cost to sell is P830,000 (980,000 – 150,000) which is greater than thecarrying amount of P800,000.

b.Revenues P5,000,000

Selling and Administrative Expenses 5,080,000

Disposal costs (75,000)

Operating Profit (Loss) before income tax P(155,000)Income tax benefit 46,500

Operating Profit (loss) P(108,500)Loss from measurement to NRV, net of income tax

benefit of P54,000 (126,000)

Discontinued Operations P(234,500)

Fair value less cost to sell is P620,000 which is P180,000 lower than the carrying amount

of P800,000, which is reported as loss from measurement to NRV.

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4-9. (CAESARS PALACE COMPANY)Caesars Palace Company

Statement of Changes in Equity

For the Years Ended December 31, 2012 and 2011

Share

Capital

Retained

Earnings TotalJanuary 1, 2011, balances as previously reported P2,000,000 P1,500,000 P3,500,000

Prior period adjustment

2010 expense charged erroneously to Equipment,

net of income tax of P24,000 (56,000) (56,000)January 1, 2011 balances, as restated P2,000,000 P1,444,000 P3,444,0002011 Changes

Profit 514,000* 514,000Dividends (200,000) (200,000)

Balances, December 31, 2011 P2,000,000 P1,758,000 P3,758,000

2012 ChangesProfit 750,000 750,000Dividends (500,000) (500,000)


Note: The solution above disregards the effect of income tax.2011 Restated profit = P500,000 + depreciation erroneously recognized (20,000 x 70%).

4-10. (TUSCANY COMPANY)Tuscany Company

Comparative Income Statements


2012 2011

Sales P3,000,000 P2,540,000Cost of goods sold (1,420,000) (1,143,000)

Gross profit 1,580,000 1,397,000

Selling expenses (350,000) (210,000)

General and administrative expenses (260,000) (220,000)

Profit before income tax P970,000 P967,000Income tax (291,000) (290,100)

Profit P 679,000 P 676,900

Ending inventory, 2011, as reported P 355,000

Cost of goods sold, as reported in 2011 1,140,000Goods available for sale P1,495,000

Beginning inventory, as reported in 2011 250,000Purchases in 2011 P1,245,000

Purchases P1,245,000

Inventory, beg (weighted average) 210,000Inventory, end (weighted average) (312,000)

Restated Cost of sales in 2011, weighted average P1,143,000

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Tuscany CompanyStatement of Changes in Equity


Share

Capital

Retained

Earnings Total

January 1, 2011, balances as previously reported P1,000,000 P 600,000 P1,600,000Cumulative effect of changing from FIFO to weighted

average method of inventory costing, net of income

tax of P12,000* (28,000) (28,000)

January 1, 2011 balances, as restated P1,000,000 P572,000 P1,572,0002011 Changes

Profit 676,900 676,900Dividends (400,000) (400,000)

December 31, 2011 balances P1,000,000 P848,900 P1,848,900

2012 Transactions

Profit 679,000 679,000


* based on 30% income tax rateCumulative effect shown on the statement of changes in equityDifference in beginning inventory of 2011 (250,000-210,000) P40,000

Applicable tax (30% x 40,000) 12,000Net adjustment (deduction) from retained earnings, January 1, 2011 P28,000The cumulative effect, however, is taken up in the books during 2012, when the change was

decided upon by the management. The following 2012 entry: is made:

Retained earnings 30,100Income tax payable 12,900

Inventory, beginning (or cost of sales) 43,000

Thus, the retained earnings at December 31, 2012 is P879,000 - 30,100 + 679,000 = P1,527,900.

4-11. (RIVIERA COMPANY)

Riviera CompanyComparative Statement of Comprehensive Income

For Year Ended December 31, 2012 and 2011(In million pesos)

2012 2011

Revenue P2,000 P1,800

Raw materials and consumables used (850) (745)

Employee benefit expense (100) (95)

Depreciation and amortization (40) (40)

Other expenses (2) (3)

Income from operations P1,008 P917

Finance costs (4) (5)Profit before income tax P1,004 P912

Income tax expense (301.2) (273.6)

Profit for the year P702.8 P638.4

Other comprehensive income

Unrealized gains (losses) on investments measured at fair

value through other comprehensive income, net ofapplicable tax .56 (.84)

Total comprehensive income P703.36 P637.56

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MULTIPLE CHOICE

Theory

MC1 D MC7 A MC13 B MC19 B

MC2 C MC8 A MC14 B MC20 B

MC3 D MC9 A MC15 A MC21 B

MC4 A MC10 D MC16 D MC22 D

MC5 A MC11 D MC17 B MC23 C

MC6 B MC12 B MC18 D MC24 C

Problems

MC25 D 210,000 – 50,000 = 160,000; 260,000 – 60,000 = 200,000200,000 – 160,000 = 40,000 + 12,000 – 50,000 = 78,000 LOSS

MC26 C 225,000 + 100,000 + 10,000 + 15,000 = 350,000;

150,000 + 50,000 + 20,000 + 100,000 + 15,000 = 335,000350,000 – 335,000 = 15,000 + 25,000 – 125,000 = 85,000 LOSS

MC27 A 21,000+25,000–10,000+70,000+5,000–(5,000 x 8)+15,000–50,000–1,000–

20,000=15,000

MC28 A 150,000 + 80,000 + (220,000 x !) + 140,000 = 480,000

MC29 A 170,000 + (240,000 x !) = 290,000MC30 D 150,000 x 8 = 1,200,000 + 80,000 = 1,280,000

MC31 B 272,000 + 36,000 – 41,600 = 266,400 + 76,800 = 343,200

MC32 B .125/.25 = .50; 100% - 50% - 12.5% - 17.5% - 5% = 15%

750,000/15% = 5,000,000 x 50% = 2,500,000

MC33 C 5,800,000–(4,800,000+650,000–550,000)=900,000–(7.5%,x900,000)=532,500

MC34 C .15/.25=60%; 100%-60%-10% - 15% - 3% = 12%; 480,000/12% = 4.0M

MC35 B 1,080000/80% = 1,350,000/90% = 1,500,000 x 30% = 450,000

MC36 C 3,500,000/70% = 5,000,000

MC37 C 5M-3.5M=1.5M – (60% x 1.5M) = 600,000

MC38 B 3,500,000 – 500,000 = 3,000,000

MC39 D 600,000+900,000 – 1,000,000 = 500,000

MC40 B P1,550,000 – P1,100,000 = 450,000MC41 D 450,000 + 600,000 – 250,000 = 800,000;

ending inventory before write off is P100,000 + 150,000 = 250,000

MC42 C 5,000,000 + 28,000 + 520,000 – 280,000 – 500,000 – 720,000 – 110,000 + 16,000

+ 100,000–400,000+55,000–70,000–50,000–80,000– 120,000 – 450,000 = 419,000

MC43 D 500,000 + (400,000 X 60%) + 70,000 + 120,000 = 930,000

MC44 C 450,000 + 2,800,000 + 80,000 – 520,000 = 2,810,000

MC45 B Cost of sales = 20/50 = 40%

100%-40% = 60% - 20%-5% = 35% Profit before tax

2,450,000/70% = 3.5M; 3.5M/35% = 10M;10M x 40% = 4M CGS x 130%=5.2M

MC46 D 2,000,000 + 100,000 – 2,100,000 = 0

MC47 D 0 + gain of P1,000,000 on disposal – income tax of P300,000 = 700,000

MC48 C(3,500,000 – 500,000) x 70% = 2,100,000

MC49 B

MC50 A (360,000 – 320,000) x 70% = P28,000

MC51 B 400,000 – 84,000 + 40,000 – 4,000 – 280,000 = 72,000; 72,000 x 70% = 50,400

Total profit = P50,400 + (40,000 x 70%) =78,400

1,600,000 + (16,000 x 70%) – (24,000 x 70% )+ 78,400 ) – 12,000 = P1,660,800

MC52 400,000 – 84,000 + 40,000 – 4,000 – 280,000 + 40,000 = 112,000112,000 x 70% = 78,400

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Ch 4 Solman 2012