72 CHAP CHAPTE TER R 6 Problem 6-1 1. 2. 3. 4. 5.
C C C A C
6. 7. 8. 9. 10.
Problem 6-2 B C B A C
1. 2. 3. 4. 5.
C D C C B
6. 7. 8. 9. 10 .
A B B B D
Problem 6-3 March 1 Cash
2,000,000 Note payable – bank
April
2,000,000
1 Cash Sales discount Accounts receivable
980,000 20,000 1,000,000
June 1 Cash
2,000,000 Accounts receivable
2,000,000
Sept. 1 Note payable – bank Interest expense (12% x 2,000,000 x 6/12) Cash
2,000,000 120,000 2,120,000
Problem 6-4 Requirement 1 2008 Oct. 1 Cash Discount on note payable (10% x 4,000,000) Note payable – bank 1 Interest expense (400,000 x 3/12) Discount on note payable 2009 Oct. 1 Note payable – bank Cash
3,600,000 400,000 4,000,000 100,000 100,000
4,000,000 4,000,000
Dec. 31 Interest expense Discount on note payable
300,000 300,000
Requirement 2 Current liabilities: Note payable – bank (Note 3) Discount on note payable Carrying value
4,000,000 ( 300,000) 3,700,000
73 Note 3 – 3 – Note payable – bank Accounts of P5,000,000 are pledged to secure the bank loan of P4,000,000.
Problem 6-5 May 1 Accounts receivable – assigned Accounts receivable
800,000
1 Cash (640,000 – 20,000) Service charge Note payable – bank
620,000 20,000 640,000
5 Sales return Accounts receivable – assigned
30,000
10 Cash Sales discount (2% x 500,000) Accounts receivable – assigned
490,000 10,000
June 1 Note payable – bank Interest expense (2% x 640,000) Cash
July
800,000
30,000
500,000 490,000 12,800 502,800
7 Allowance for doubtful accounts Accounts receivable – assigned
10,000
20 Cash Accounts receivable – assigned
200,000
1 No Note payable – bank (640,000 – 490,000) Interest expense (2% x 150,000) Cash 1 Accounts receivable Accounts receivable – assigned Accounts receivable – assigned Less: Collections Sales discount Sales return Worthless accounts Balance
10,000
200,000 150,000 3,000 153,000 60,000 60,000 800,000 690,000 10,000 30,000 10,000
740,000 60,000
Problem 6-6 July 1 Accounts receivable – assigned Accounts receivable
1,500,000 1,500,000
74 July 1 Cash (1,125,000 – 60,000) Service charge (4% x 1,500,000) Note payable – bank Aug. 1 Note payable – bank Accounts receivable – assigned 1 Interest expense (2% x 1,125,000) Cash
1,065,000 60,000 1,125,000 800,000 800,000 22,500 22,500
Sept. 1 Cash Interest expense Note payable – bank Accounts receivable – assigned
168,500 6,500 325,000
Accounts receivable Accounts receivable – assigned
200,000
500,000
200,000
Collections by bank Less: Payment of loan (1,125,000 – 800,000) Excess collection Less: Interest (2% x 325,000) Cash remittance from bank
500,000 325,000 175,000 6,500 168,500
Problem 6-7 July 1 Accounts receivable – assigned Accounts receivable 1 Cash (400,000 – 10,000) Service charge (2% x 500,000) Note payable – bank
500,000 500,000 390,000 10,000 400,000
Aug. 1 Cash Accounts receivable – assigned
330,000
1 Interest expense (1% x 400,000) Note payable – bank Cash
4,000 326,000
Sept. 1 Cash Accounts receivable – assigned
170,000
1 Interest expense (1% x 74,000) Note payable – bank Cash
330,000
330,000
170,000 740 74,000 74,740
75 Problem 6-8 Requirement a Dec. 1 Accounts receivable – assigned Accounts receivable
1,500,000
1 Cash Service charge Note payable – bank
1,250,000 50,000
31 Cash Sales discount Accounts receivable – assigned 31 Interest expense (1% x 1,300,000) Note payable – bank Cash
1,500,000
1,300,000 970,000 30,000 1,000,000 13,000 957,000 970,000
Requirement b The accounts receivable – assigned with a balance of P500,000 should be classified as current asset and included in trade and other receivables. The note payable – bank of P343,000 should be classified and presented as a current liability. The company should disclose the equity in assigned accounts as follows: Accounts receivable – assigned Note payable – bank Equity in assigned accounts
500,000 (343,000) 157,000
Problem 6-9 July
1 Accounts receivable – assigned Accounts receivable
800,000
1 Cash (640,000 – 24,000) Service charge (3% x 800,000) Note payable – bank
616,000 24,000
Aug. 1 Interest expense (1% x 640,000) Note payable – bank Accounts receivable – assigned
6,400 413,600
Sept. 1 Cash Interest expense Note payable – bank Accounts receivable – assigned
91,336 2,264 226,400
800,000
640,000
420,000
320,000
76 Accounts receivable Accounts receivable – assigned
60,000 60,000
Bank loan August 1 payment Balance
640,000 413,600 226,400
Collections by bank Less: Payment of loan Interest (1% x 226,400) Remittance from bank
320,000 226,400 2,264
228,664 91,336
Problem 6-10 Cash Allowance for doubtful accounts Loss on factoring Accounts receivable
400,000 30,000 70,000 500,000
Problem 6-11 Cash Receivable from factor Allowance for bad debts Loss on factoring Accounts receivable
5,000,000 300,000 250,000 450,000 6,000,000
Problem 6-12 Feb. 1 Cash Service charge (5% x 800,000) Receivable from factor (10% x 800,000) Accounts receivable
680,000 40,000 80,000 800,000
15 Sales return and allowances Receivable from factor
20,000
28 Cash (80,000 – 20,000) Receivable from factor
60,000
20,000
60,000
Problem 6-13 June 1 Accounts receivable Sales
500,000 500,000
77 June 3 Cash Sales discount (2% x 500,000) Commission (5% x 500,000) Receivable from factor (25% x 500,000) Accounts receivable 9 Sales return and allowances Sales discount (2% x 50,000) Receivable from factor
340,000 10,000 25,000 125,000 500,000 50,000 1,000 49,000
11 No entry 15 Cash (125,000 – 49,000) Receivable from factor
76,000 76,000
Problem 6-14 July 26 Cash Commission (5% x 1,000,000) Receivable from factor (20% x 1,000,000) Accounts receivable
750,000 50,000 200,000
July 28 Sales return and allowances Receivable from factor
50,000
Aug. 31 Cash Receivable from factor
150,000
1,000,000
50,000
150,000
Problem 6-15 1. Cash Service charge (5% x 200,000) Receivable from factor (20% x 200,000) Accounts receivable
150,000 10,000 40,000
2. Accounts receivable – assigned Accounts receivable
300,000
Cash Service charge (5% x 300,000) Note payable – bank
225,000 15,000
3. Doubtful accounts Allowance for doubtful accounts Required allowance (5% x 1,300,000) Less: Allowance – January 1 Doubtful accounts
200,000
300,000
240,000 35,000 35,000 65,000 30,000 35,000
78 4. The net realizable value of the accounts receivable is included in trade and other receivables and presented as current asset. Accounts receivable – unassigned Accounts receivable – assigned Total Less: Allowance for doubtful accounts Net realizable value
1,000,000 300,000 1,300,000 65,000 1,235,000
The receivable from factor of P40,000 is also included in trade and other receivables. The note payable – bank of P240,000 is classified and presented as current liability. However, the company should disclose the equity in assigned accounts as follows: Accounts receivable – assigned Note payable – bank Equity in assigned accounts
300,000 (240,000) 60,000
Problem 6-16 Books of Motorway Company 1. Cash Receivable from factor Allowance for doubtful accounts Loss on factoring Accounts receivable
2,250,000 300,000 100,000 350,000 3,000,000
Gross amount Holdback (10% x 3,000,000) Commission (15% x 3,000,000) Cash received
3,000,000 ( 300,000) ( 450,000) 2,250,000
Sales price (3,000,000 x 85%) Book value of accounts receivable (3,000,000 – 100,000) Loss on factoring
2,250,000 2,900,000 ( 350,000)
2. Cash Receivable from factor Accounts receivable factored Collections by factor Balance – December 31 Receivable from factor per book Required holdback (10% x 500,000) Remittance from factor
250,000 250,000 3,000,000 2,500,000 500,000 300,000 50,000 250,000
79 Books of Freeway Company (factor) 1. Accounts receivable Cash Clients retainer Commission income
3,000,000
2. Cash Accounts receivable
2,500,000
3. Clients retainer Cash 4. Doubtful accounts Allowance for doubtful accounts (4% x 500,000)
2,250,000 300,000 450,000
2,500,000 250,000 250,000 20,000 20,000
Problem 6-17 Jan. 15 Notes receivable Sales
500,000
Feb. 15 Cash Interest expense Notes receivable discounted
496,875 3,125
5 0 0 ,0 0 0
500,000
Principal Interest (500,000 x 12% x 6/12) Maturity value Discount (530,000 x 15% x 5/12) Net proceeds July 15 Notes receivable discounted Notes receivable
500,000 30,000 530,000 33,125 496,875 500,000 500,000
Problem 6-18 March 14 Accounts receivable Sales
2,050,000
April
7 Notes receivable Freight out Accounts receivable
2,000,000 50,000
April 20 Cash Notes receivable discounted Interest income
2,001,750
2,050,000
2,050,000
2,000,000 1,750
80 Principal Add: Interest (2,000,000 x 12% x 60/360) Maturity value Less: Discount (2,040,000 x 15% x 45/360) Net proceeds June 4
July
4
2,000,000 40,000 2,040,000 38,250 2,001,750
Accoun ounts receiva ivable (2,040,0 0,000 + 10,000 000) Cash
2,050,00 ,000
Notes receivable discounted Notes receivable
2,000,000
Cash Accounts receivable Interest income (2,000,000 x 12% x 30/360
2,070,000
2,050,000
2,000,000
2,050,000 20,000
Problem 6-19 Requirement a April 5 Notes receivable Accounts receivable 19 Cash Notes receivable discounted Interest income
500,000 500,000 501,075 500,000 1,075
Principal Add: Interest (500,000 x 12% x 60/360) Maturity value Less: Discount (510,000 x 14% x 45/360) Net proceeds May 3 Notes receivable Accounts receivable 16 Cash Interest expense Notes receivable discounted
5 0 0 ,0 0 0 10,000 510,000 8 ,9 2 5 5 0 1 ,0 7 5 1,000,000 1,000,000 995,000 5,000 1,000,000
Principal Less: Discount (1,000,000 x 12% x 15/360) Net proceeds May 25 Notes receivable Interest income Accounts receivable
1,000,000 5 ,0 0 0 9 9 5 ,0 0 0 1,500,000 4,500 1,504,500
81 Principal Add: Interest (1,500,000 x 12% x 60/360) Maturity value Less: Discount (1,530,000 x 12% x 50/360) Net credit June 7 Accounts receivable (510,000 + 20,000) Cash Notes receivable discounted Notes receivable 15 Notes receivable Sales June 18 Cash Accounts receivable Interest income (530,000 x 12% x 15/360)
1,500,000 30,000 1,530,000 25,500 1,504,500 530,000 530,000 500,000 500,000 800,000 800,000 532,650 530,000 2,650
Requirement b – Adjustments on June 30 1. Accrued interest receivable Interest income (800,000 x 12% x 15/360)
4,000 4,000
Accrued interest on D’s note. 2. Notes receivable discounted Notes receivable
1,000,000 1,000,000
To cancel the contingent liability on B’s note. This note matured on May 31. Since there is no notice of dishonor it is assumed that the said note is paid on the date of maturity.
Problem 6-20 May
1 Notes receivable Accounts receivable
200,000
1 Notes receivable Accounts receivable
300,000
200,000
300,000
July 30 Accounts receivable Notes receivable Interest income (200,000 x 12% x 90/360)
206,000
Aug. 1 Cash Note receivable discounted Interest income
306,075
200,000 6,000
300,000 6,075
82 Principal Interest (300,000 x 12% x 6/12) Maturity value Less: Discount (318,000 x 15% x 3/12) Net proceeds Sept. 1 Notes receivable Accounts receivable Interest income 28 Cash
300,000 18,000 318,000 11,925 306,075 132,000 120,000 12,000 210,120
Accounts receivable Interest income (206,000 x 12% x 60/360)
206,000 4,120
Oct. 1 Notes receivable Sales
500,000
Nov. 1 Accounts receivable (318,000 + 12,000) Cash
330,000
Notes receivable discounted Notes receivable Dec. 30 Cash
500,000
330,000 300,000 300,000 515,000
Notes receivable Interest income (500,000 x 12% x 90/360 31 Cash
500,000 15,000 336,600
Accounts receivable Interest income (330,000 x 12% x 2/12)
330,000 6,600
Problem 6-21 2008 Jan. 1 Cash Notes receivable Land Gain on sale of land Dec. 31 Accrued interest receivable Interest income (12% x 6,000,000) 2009 Dec. 31 Accrued interest receivable Interest income (12% x 6,720,000) 2010 Jan. 1 Cash
1,000,000 6,000,000 5,000,000 2,000,000 720,000 720,000
806,400 806,400
7,526,400 Notes receivable Accrued interest receivable
6,000,000 1,526,400
83 Problem 6-22 Jan. 1 Notes receivable Sales Unearned interest income
600,000
Dec. 31 Cash Notes receivable
200,000
540,000 60,000
200,000
31 Unearned interest income Interest income Year 2008 2009 2010
30,000 30,000
Notes receivable 600,000 400,000 200,000 1,200,000
Fraction 6/12 4/12 2/12
Interest income 30,000 20,000 10,000 60,000
Problem 6-23 Face value Present value (300,000 x 2.4018) Unearned interest income
900,000 720,540 179,460
Present value Cash received Sales price Cost of generator Gross income
Jan. 1 Cash Notes receivable Sales Unearned interest income
100,000 900,000
Dec. 31 Cash
300,000
820,540 179,460
Notes receivable
300,000
31 Unearned interest income Interest income Date Jan. 1, 2008 Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2010
720,540 100,000 820,540 700,000 120,540
86,465 86,465
Collection
Interest
Principal
300,000 300,000 300,000
86,465 60,841 32,154
213,535 239,159 267,846
Present value 720,540 507,005 267,846 -
84 Problem 6-24 Requirement 1 12/31/2008
12/31/2009
Note receivable Sales (500,000 x 3.99) Unearned interest income
2,500,000 1,995,000 505,000
Cash Note receivable
500,000
Unearned interest income Interest income (8% x 1,995,000)
159,600
500,000
159,600
Requirement 2 Note receivable (2,500,000 – 500,000) Unearned interest income (505,000 – 159,600) Book value – 12/31/2009
2,000,000 ( 345,400) 1,654,600
Requirement 3 Interest income for 2010 (8% x 1,654,600)
132,368
Problem 6-25 Face value of note Present value (400,000 x .7118) Unearned interest income
400,000 284,720 115,280
2008 Jan. 1 Cash Notes receivable Accumulated depreciation Equipment Gain on sale of equipment Unearned interest income Dec. 31 Unearned interest income Interest income Date Jan. 01, 2008 Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2010
Interest income 34,166 38,266 42,848
2009 Dec. 31 Unearned interest income Interest income
Present value Cash received Sales price Book value Gain on sale
284,720 125,000 409,720 350,000 59,720
125,000 400,000 150,000 500,000 59,720 115,280 34,166 34,166 Unearned interest 115,280 81,114 42,848 -
Present value 284,720 318,886 357,152 400,000
38,266 38,266
85 2010 Dec. 31 Unearned interest income Interest income
42,848 42,848
2011 Jan. 1 Cash Notes receivable
400,000 400,000
Problem 6-26 1/1/2008
Note receivable Loss on sale of land Land Unearned interest income
9,000,000 250,000 7,000,000 2,250,000
PV of note (9,000,000 x .75) Carrying amount of land Loss on sale 12/31/2008
12/31/2009
12/31/2010
1/1/2011
6,750,000 7,000,000 ( 250,000)
Unearned interest income Interest income (10% x 6,750,000)
675,000
Unearned interest income Interest income (10% x 7,425,000)
742,500
Unearned interest income Interest income (2,250,000 – 1,417,500)
832,500
Cash Note receivable
675,000
742,500
832,500 9,000,000 9,000,000
Problem 6-27 Answer C Note payable Discount on note payable (1,000,000 x 10.8%) Net proceeds Discount on note payable Amortization from August 1 to December 31 (108,000 x 5/12) Balance – December 31, 2008 Note payable Discount on note payable Carrying value
108,000 ( 45,000) 63,000 1,000,000 ( 63,000) 937,000
Problem 6-28 Question 1 – Answer A
1,000,000 ( 108,000) 892,000
Question 2 - Answer B
86 Problem 6-29 Answer A Problem 6-30 Answer C Principal Add: Interest (500,000 x 8%) Maturity value Less: Discount (540,000 x 10% x 6/12) Net proceeds
Problem 6-31 Answer C 500,000 40,000 540,000
Principal Less: Discount (200,000 x 10% x 6/12) Net proceeds
200,000 10,000 190,000
27,000 513,000
Problem 6-32 Answer A Principal Interest (4,000,000 x 12% x 90/360) Maturity value Less: Discount (4,120,000 x 15% x 60/360) Net proceeds Principal Interest revenue
Problem 6-33 Answer C Principal Add: Interest (600,000 x 10% x 6/12) Maturity value Less: Discount (630,000 x 12% x 4/12) Net proceeds
4,000,000 120,000 4,120,000 103,000 4,017,000 4,000,000 17,000
Problem 6-34 Answer B 600,000 30,000 630,000 25,200 604,800
Note receivable – June 30, 2007 Less: Payment on July 1, 2008 Balance – July 1, 2008 Accrued interest from July 1, 2008 to June 30, 2009 (1,000,000 x 8)
1,500,000 500,000 1,000,000
80,000
Problem 6-35 Answer C Problem 6-36 Answer A First payment on January 1, 2008 Present value of remaining six payments (600,000 x 4.36) Correct sales revenue
600,000 2,616,000 3,216,000
Problem 6-37 Answer D
Problem 6-38 Answer C
Note receivable 1,000,000 Unearned interest income ( 435,000) Carrying value equal to present value (100,000 x 5.65) 565,000
The note receivable is shown at its value on December 31, 2008. Face value – remaining nine payments (500,000 x 9) Present value (500,000 x 6.25) Unearned interest income
4,500,000 3,125,000 1,375,000
87 Problem 6-39 1. Answer C Note receivable Present value of note receivable (6,000,000 x .75) Unearned interest income
6,000,000 4,500,000 1,500,000
Interest income: 2008 (10% x 4,500,000) 2009 (10% x 4,950,000) 2010 (1,500,000 – 450,000 – 495,000) Total
450,000 495,000 555,000 1,500,000
2. Answer D Present value of note receivable Carrying amount of equipment Loss on sale of equipment
4,500,000 4,800,000 ( 300,000)
Problem 6-40 Answer B Present value of note receivable (1,000,000 x .712) Book value of equipment Loss on sale Interest income for first year (12% x 712,000)
712,000 800,000 ( 88,000) 85,440
Problem 6-41 Answer D NR from Hart NR from Maxx (1,150,000 x .68)
1,000,000 782,000
88 CHAPTER 7
Problem 7-1
Problem 7-2
Problem 7-3
Problem 7-4
Problem 7-5
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
D B D D D D C A A A
D D A C D A D A A B
B A A C C D C A A D
D C C A A C A C A C
C B A C D D A B B A
Problem 7-6 Items counted in the bodega Items included in count specifically segregated per sales contract Items returned by customer Items ordered and in receiving department Items shipped today, FOB destination Items for display Items on counter for sale Damaged and unsalable items included in count Items in shipping department
4,000,000 ( 100,000) 50,000 400,000 150,000 200,000 800,000 ( 50,000) 250,000 5,700,000
Problem 7-7 Materials Goods in process Finished goods in factory Finished goods in company-owned retail store (750,000/150%) Finished goods in the hands of consignees (400,000 x 60%) Finished goods in transit Finished goods out on approval Materials in transit (330,000 + 30,000) Correct inventory
1,400,000 650,000 2,000,000 500,000 240,000 250,000 100,000 360,000 5,500,000
Problem 7-8 Finished goods Finished goods held by salesmen Goods in process (720,000/80%) Materials Materials returned to suppliers for replacement Factory supplies (110,000 + 60,000) Correct inventory
2,000,000 100,000 900,000 1,000,000 100,000 170,000 4,270,000
89 Problem 7-9 1. Inventory Income summary
50,000
2. Accounts payable Purchases
75,000
3. Purchases Accounts payable
30,000
Inventory Income summary
30,000
4. Income summary Inventory 5. Purchases Accounts payable
50,000
75,000
30,000
30,000 90,000 90,000 140,000 140,000
Problem 7-10 1. EXCLUDE – The term of the shipment is FOB destination. 2. EXCLUDE – The goods are held only for consignment. 3. INCLUDE – There is no perfected sale yet as of December 31, 2008. 4. INCLUDE – The term FOB supplier’s warehouse is synonymous with FOB shipping point. 5. EXCLUDE – There is already a constructive delivery since the article was specifically made according to the customer’s specifications and the article is already completed on December 31, 2008.
Problem 7-11 Inventory before adjustment Goods out on consignment Goods purchased FOB shipping point Goods sold FOB shipping point Goods sold FOB destination Goods sold FOB destination Correct December 31 inventory
7,600,000 1,000,000 250,000 ( 850,000) 260,000 840,000 9,100,000
90 Problem 7-12 Inventory per book Item 3 (18,500 – 1,000 / 140%) Item 4 (50,000 + 2,500) Item 5 (35,000 / 140% = 25,000 + 2,000) Adjusted inventory
950,000 12,500 52,500 27,000 1,042,000
Problem 7-13 Requirement a Periodic System 1. Purchases Accounts payable
Perpetual System
800,000 800,000
2. Accounts payable Purchase returns
50,000
3. Accounts payable Cash
600,000
4. Accounts receivable Sales 5. Sales return Accounts receivable
50,000
600,000 1,580,000 1,580,000 40,000 40,000
6. Cash 1,360,000 Accounts receivable 7. Inventory-Dec. 31 Income summary (60 x 1,000)
1,360,000
60,000 60,000
1. Merchandise inventory Accounts payable
800,000 800,000
2. Accounts payable 50,000 Merchandise inventory 3. Accounts payable Cash 4. Accounts receivable Sales
50,000
600,000 600,000 1,580,000 1,580,000
Cost of sales 790,000 Merchandise inventory 5. Sales return Accounts receivable
40,000
Merchandise inventory Cost of sales
20,000
40,000
20,000
6. Cash 1,360,000 Accounts receivable 7. Inventory shortage Merchandise inventory
790,000
1,360,000
10,000
Merchandise inventory per book Physical count Shortage
10,000 70,000 60,000 10,000
Requirement b Periodic System Inventory – January Purchases 800,000 Purchase returns ( 50,000) Goods available for sale Less: Inventory – December 31 Cost of sales
Perpetual System 90,000 750,000 840,000 60,000 780,000
Cost of sales recorded (790,000 – 20,000) Inventory shortage Adjusted cost of sales
770,000 10,000 780,000
91 Problem 7-14 Company A List price Less: First trade discount (20% x 500,000)
Third trade discount (10% x 360,000) Invoice price Less: Cash discount (2% x 324,000) Payment within the discount period
500,000 100,000 400,000 40,000 360,000 36,000 324,000 6,480 317,520
Company B List price Less: Trade discount (35% x 500,000) Invoice price Less: Cash discount (2% x 325,000) Payment within the discount period
500,000 175,000 325,000 6,500 318,500
Second trade discount (10% x 400,000)
Problem 7-15 Requirement a Gross method 1. Purchases Accounts payable 2. Freight in Cash
Net method
4,750,000 4,750,000 250,000 250,000
3. Accounts payable Cash Purchase discount
1,650,000
Accounts payable Cash
2,100,000
1,617,000 33,000
2,100,000
4. No entry
5. Inventory Income summary
1. Purchases Accounts payable 2. Freight in Cash 3. Accounts payable Cash
1,000,000
4,655,000 250,000 250,000 1,617,000 1,617,000
Accounts payable 2,058,000 Purchase discount lost 42,000 Cash 4. Purchase discount lost Accounts payable (1,000,000 x 2%)
1,000,000
4,655,000
5. Inventory Income summary
2,100,000
20,000 20,000
981,000 981,000
92 Requirement b Gross method
Net method
Purchases Freight in Total Less: Purchase discounts Goods available for sale Less: Inventory – December 31 Cost of sales
4,750,000 250,000 5,000,000 33,000 4,967,000 1,000,000 3,967,000
4,655,000 250,000 4,905,000 -___ 4,905,000 981,000 3,924,000
Ending inventory: Gross (5,000,000/5) Net (4,905,000/5)
1,000,000 981,000
Problem 7-16 Gross method Sept. 1 Purchases Accounts payable
650,000
1 Freight in Accounts payable
20,000
7 Accounts payable Purchase returns and allowances
10,000
Oct. 1 Accounts payable Cash
650,000
20,000
10,000 660,000 660,000
Net method Sept. 1 Purchases Accounts payable
637,000
1 Freight in Accounts payable
20,000
7 Accounts payable (10,000 x 98%) Purchase returns and allowances Oct. 1 Accounts payable (657,000 – 9,800) Purchase discount lost (2% x 640,000) Cash
637,000
20,000 9,800 9,800 647,200 12,800 660,000
93 Problem 7-17 Gross method 1. Merchandise inventory Accounts payable
1,000,000 1,000,000
2. Accounts payable Cash
50,000
3. Accounts payable Cash Cost of sales
800,000
4. Accounts payable Cash
150,000
5. Cash Sales
Net method
50,000
784,000 16,000
150,000 1,200,000
Cost of sales 700,000 Merchandise inventory (1,000,000 x 70%)
1,200,000
700,000
1. Merchandise inventory Accounts payable
980,000 980,000
2. Accounts payable Cash
50,000 50,000
3. Accounts payable 784,000 Cash (800,000 x 98%)
4. Accounts payable Purchase discount lost Cash 5. Cash Sales
784,000
146,000 4,000 150,000 1,200,000 1,200,000
Cost of sales 686,000 Merchandise inventory (980,000 x 70%)
686,000
Problem 7-18 1. FIFO - periodic Lot No. 4 5
2. Beginning inventory Purchases: Lot No. 1 2 3 4 5 Goods available for sale
Units
Unit cost
Total cost
500 14,500 15,000
100 90
50,000 1,305,000 1,355,000
10,000 2,000 8,000 6,000 9,500 14,500 50,000
80 100 110 120 100 90
800,000 200,000 880,000 720,000 950,000 1,305,000 4,855,000
Weighted average (4,855,000/50,000) 3. Specific identification Lot 3 4
FIFO Weighted average Specific identification
15,000
6,000 9,000 15,000 Goods available 4,855,000 4,855,000 4,855,000
97.10
120 100
Inventory-Dec. 31 1,355,000 1,456,500 1,620,000
1,456,500
720,000 900,000 1,620,000 Cost of sales 3,500,000 3,398,500 3,235,000
94 Problem 7-19 Units
Unit cost
Total cost
10,000 20,000 30,000
45 43
450,000 860,000 1,310,000
10,000 30,000 60,000 20,000 120,000
52 50 45 43
520,000 1,500,000 2,700,000 860,000 5,580,000
46.50
1,395,000
FIFO December 17 22
Average method December 1 7 17 22 Available for sale Inventory (5,580,000/120,000)
30,000
FIFO 5,580,000 1,310,000 4,270,000
Goods available for sale Less: Inventory – December 31 Cost of goods sold
Average 5,580,000 1,395,000 4,185,000
Problem 7-20 The stock cards are not prepared anymore. The end results are simply given. Units FIFO Ending inventory
Unit cost
4,000
210
Cost of sales
Total cost 840,000 2,700,000
Average method Ending inventory
4,000
252.50
Cost of sales
1,010,000 2,530,000
Problem 7-21 2006 2007 2008 Total inventory – December 31, 2008 (units)
Purchases 5,000 9,000 15,000
Sales Cost of sales: Inventory – December 31, 2007 (3,000 x 60) Purchases Goods available for sale Less: Inventory – December 31, 2008 (6,000 x 75) Gross income
Sales 4,000 7,000 12,000
Inventory increment 1,000 2,000 3,000 6,000 1,200,000 180,000 1,125,000 1,305,000 450,000
855,000 345,000
95 Problem 7-22 Units
Unit cost
FIFO October 1
15,000
60
900,000
Weighted average – periodic January 1 April 1 October 1 Goods available for sale Less: Sales Ending inventory
10,000 15,000 25,000 50,000 35,000 15,000
40 50 60
400,000 750,000 1,500,000 2,650,000
Weighted average (2,650,000/50,000)
15,000
53
795,000
Units Moving average – perpetual January 1 31 Balance April 1 Total July 31 Balance October 1 Total December 31 Balance
10,000 ( 5,000) 5,000 15,000 20,000 (18,000) 2,000 25,000 27,000 (12,000) 15,000 FIFO
Inventory – January 1 Purchases Goods available for sale Less: Inventory – December 31 Cost of sales
Unit cost 40 40 40 50 47.50 47.50 47.50 60__ 59.07 59.07 59.07
Total cost
Total cost 400,000 ( 200,000) 200,000 750,000 950,000 ( 855,000) 95,000 1,500,000 1,595,000 ( 708,840) 886,160
Weighted average
400,000 2,250,000 2,650,000 900,000 1,750,000
400,000 2,250,000 2,650,000 795,000 1,855,000
Cost of sales – Weighted average perpetual January 31 Sale July 31 Sale December 31 Sale Total cost of sales
200,000 855,000 708,840 1,763,840
Problem 7-23 FIFO October 1 purchase
Units
Unit cost
Total cost
300
10,000
3,000,000
96 Weighted average January 1 April 5 October 1 Goods available for sale Inventory – December 31 (9,200,000/1,000)
Units
Unit cost
Total cost
200 300 500 1,000
7,500 9,000 10,000
1,500,000 2,700,000 5,000,000 9,200,000
300
9,200
2,760,000
FIFO Inventory – January 1 Purchases Goods available for sale Less: Inventory – December 31 Cost of goods sold
Weighted average
1,500,000 7,700,000 9,200,000 3,000,000 6,200,000
1,500,000 7,700,000 9,200,000 2,760,000 6,440,000
Problem 7-24 Sales Gross profit Cost of goods sold Inventory – July 31 (see below) Cost of goods available for sale Purchases for July Inventory – July 1
July 12 25 FIFO inventory – July 31
6,000,000 (2,400,000) 3,600,000 928,000 4,528,000 (3,174,000) 1,354,000 Quantity 1,000 14,000 15,000
Unit cost 60 62
Total cost 60,000 868,000 928,000
Problem 7-25 1. Cost of units available for sale for July Purchases for July Cost of inventory – July 1 Number of units – July 1 (410,000 / P4) 2. July 1 inventory Purchases for July Total units available for sale for July July 31 inventory Units sold during the month of July 3. Average unit cost (1,452,100 / 302,500) Inventory – July 31 (60,000 x 4.80) Another computation (1,452,100 – 1,164,100)
1,452,100 (1,042,100) 410,000 102,500 102,500 200,000 302,500 ( 60,000) 242,500 4.80 288,000 288,000
97 Problem 7-26 Units 1. Inventory – December 31, 2007 2007 layer
11,000
2. Inventory – December 31, 2006 Purchases – 2007 Materials available Less: Inventory – December 31, 2007 Raw materials used – 2007
14,000 12,000 26,000 11,000 15,000
3. Inventory – December 31, 2008 2008 layer
15,000
4. Inventory – December 31, 2007 Purchases – 2008 Materials available Less: Inventory – December 31, 2008 Raw materials used – 2008
11,000 20,000 31,000 15,000 16,000
Average unit cost
138
138
153
153
Total cost
1,518,000 1,480,000 1,656,000 3,136,000 1,518,000 1,168,000
2,295,000 1,518,000 3,060,000 4,578,000 2,295,000 2,283,000
Problem 7-27 Available for sale Units sold (2,800,000/100) Ending inventory
FIFO September 5 25
Weighted average (1,753,500/42,000)
Available for sale Less: Ending inventory Cost of sales
42,000 28,000 14,000 Units
Unit cost
Total cost
2,000 12,000 14,000
43.00 42.50
86,000 510,000 596,000
14,000
41.75
584,500
Average 1,753,500 584,500 1,169,000
FIFO 1,753,500 596,000 1,157,500
(Sch. 1)
(Sch. 2)
98 Problem 7-28 Cost of sales – Average Understatement of ending inventory: 2006 2007 2008 Cost of sales – FIFO
Sales Cost of sales – FIFO Gross income Operating expenses Operating income Proof Net income – Average Understatement of ending inventory: 2006 2007 2008 Net income – FIFO
2006 1,500,000
2007 2,000,000
2008 2,400,000
( 150,000) _______ 1,350,000
150,000 ( 200,000) ________ 1,950,000
200,000 ( 270,000) 2,330,000
2006 3,000,000 1,350,000 1,650,000 800,000 850,000
2007 4,000,000 1,950,000 2,050,000 900,000 1,150,000
2008 4,800,000 2,330,000 2,470,000 1,000,000 1,470,000
700,000
1,100,000
1,400,000
150,000) 200,000 _____ 1,150,000
( 200,000) 270,000 1,470,000
150,000
(
_______ 850,000
Problem 7-29 Units
Lower of cost or NRV
Materials: R S T
1,000 2,000 3,000
100 250 300
100,000 500,000 900,000
Goods in process: X Y
4,000 5,000
480 620
1,920,000 3,100,000
Finished goods: A B
2,000 2,000
790 730
1,580,000 1,460,000
Valuation at lower of cost or NRV
Inventory value
9,560,000
99 Problem 7-30 Units 1,000 1,500 1,200 1,800 1,700
A B C D E
Unit cost 120 110 150 140 130
NRV 150 120 140 160 160
(Lower of cost or NRV) Inventory value 120,000 165,000 168,000 252,000 221,000 926,000
Problem 7-31 Product 1 2 3 4
Unit cost 700 475 255 450
NRV 650 745 250 740
Lower of cost or NRV 650 475 250 450
Units
Unit cost
NRV
Lower of cost or NRV
500 300
2,500 3,700
2,700 3,600
1,250,000 1,080,000
Car accessories C 600 D 800 Valuation at lower of cost or NRV
1,400 2,100
2,000 2,000
840,000 1,600,000 4,770,000
Problem 7-32
Appliances: A B
Problem 7-33 1. September 30 (40,000 x 75) December 31 (10,000 x 90) Total FIFO cost NRV (50,000 x 72) Loss on inventory writedown
3,000,000 900,000 3,900,000 3,600,000 300,000
Inventory – January 1 Purchases Purchase discount Goods available for sale Less: Inventory – December 31 Cost of goods sold before inventory writedown Loss on inventory writedown Cost of goods sold after inventory writedown 2. Inventory – December 31 Income summary
1,200,000 9,400,000 ( 400,000) 10,200,000 3,900,000 6,300,000 300,000 6,600,000 3,900,000 3,900,000
100 Loss on inventory writedown Allowance for inventory writedown
300,000 300,000
Problem 7-34 a. No adjustment is necessary because the market price is higher than the agreed price. Any gain on purchase commitment is not recognized. b. No adjustment is necessary because the market price has not declined as of December 31, 2008. The market decline is only a possible loss. c. Loss on purchase commitment (10,000 x 30) Estimated liability for purchase commitment
300,000 300,000
d. Purchases (100,000 x 150) Loss on purchase commitment Estimated liability for purchase commitment Accounts payable (10,000 x 200)
1,500,000 200,000 300,000
e. Purchases Estimated liability for purchase commitment Accounts payable Gain on purchase commitment
2,000,000 300,000
2,000,000
2,000,000 300,000
Problem 7-35 12/31/2008
03/31/2009
Loss on purchase commitment Estimated liability for PC Purchase (100,000 x 54) Estimated liability for PC Accounts payable Gain on purchase commitment
500,000 500,000 5,400,000 500,000 5,500,000 400,000
Problem 7-36 Purchase price Improving and subdividing cost Total cost
Group 1 (20 x 3,000,000) 2 (10 x 2,500,000) 3 (10 x 2,000,000)
26,850,000 43,500,000 70,350,000
Sales price
Fraction
60,000,000 25,000,000 20,000,000 105,000,000
60/105 25/105 20/105
Cost 40,200,000 16,750,000 13,400,000 70,350,000
101 Cost per lot Group 1 (40,200,000/20) 2 (16,750,000/10) 3 (13,400,000/10)
2,010,000 1,675,000 1,340,000
Unsold
Cost
5 4 3
10,050,000 6,700,000 4,020,000 20,770,000
Problem 7-37 Inventory 1,750,000 50,000 20,000 26,000 25,000 30,000 10,000 1,911,000
Unadjusted 1 2 3 4 5 6 7 8 Adjusted
Accounts payable 1,200,000 50,000 60,000 20,000 1,330,000
Net sales 8,500,000 ( 35,000) ( 40,000) -_ __ 8,425,000
Accounts payable 1,000,000 ( 165,000) 25,000 860,000
Net sales 9,000,000 ( 40,000) - ___ 9,040,000
Problem 7-38
Unadjusted 1 2 3 4 5
Inventory 1,250,000 ( 165,000) ( 20,000) 210,000 25,000 1,300,000
Problem 7-39 1. Biological asset Cash
600,000
2. Biological asset Gain from change in fair value
700,000
3. Biological asset Gain from change in fair value
100,000
4. Loss from change in fair value Biological asset
600,000
700,000
100,000 90,000 90,000
102 Problem 7-40 Requirement 1 1. To record the purchase of one animal aged 2.5 years on July 1. Biological assets Cash
108 108
2. To record the birth of one animal on July 1 with fair value of P70. Biological assets Cash
70 70
3. To record the change in the fair value: Biological assets Cash
222 222
Fair value of 10 animals on January 1 (10 x P100) Newborn animal on July 1 at fair value Acquisition cost of one animal on July 1 Total book value of biological assets – December 31
1,000 70 108 1,178
Fair value of 3-year old animals on December 31 (11 x P120) Fair value of 0.5-year old animal on December 31, the newborn (1 x P80) Total fair value – December 31, 2008 Book value of biological assets – December 31 Increase in fair value
1,320 80 1,400 1,178 222
Requirement 2 Statement of financial position : Biological assets Income statement: Gain from change in fair value (70 + 222)
1,400
292
Problem 7-41 Answer C Physical count
1,500,000
Problem 7-42 Answer D Physical count Merchandise shipped FOB shipping point on December 30, 2008 from a vendor Goods shipped FOB shipping point to a customer on January 4, 2009 Correct inventory
2,500,000 100,000 400,000 3,000,000
103 Problem 7-43 Answer D
Problem 7-44 Answer D Markup (40% x 500,000) Goods received on consignment Total reduction
200,000 400,000 600,000
Problem 7-45 Answer B Inventory shipped on consignment Freight paid Consigned inventory
600,000 50,000 650,000
Problem 7-46 Answer A Reported inventory Goods sold in transit, FOB destination Goods purchased in transit, FOB shipping point Correct amount of inventory
2,000,000 200,000 300,000 2,500,000
Problem 7-47 Answer A
Problem 7-48 Answer A Consignment sales revenue (40 x P10,000)
400,000
Problem 7-49 Answer B Sales (900 x 1,000) Commission (10% x 900,000) Payable to consignor
900,000 ( 90,000) 810,000
Problem 7-50 Answer C List price Trade discounts 20% x 900,000 10% x 720,000 Invoice price Freight Cost of purchase
900,000 (180,000) 720,000 ( 72,000) 648,000 50,000 698,000
104 Problem 7-51 Answer B List price Trade discounts 20% x 1,000,000 10% x 800,000 Invoice price Cash discount (5% x 720,000) Net amount Freight charge Total remittance
1,000,000 ( 200,000) 800,000 ( 80,000) 720,000 ( 36,000) 684,000 50,000 734,000
Problem 7-52 Answer A Problem 7-53 Answer B Purchases of IBM compatibles Purchases of commercial software packages Total Less: Purchase return Net purchases Discounts available on purchases (2% x 2,850,000) Less: Purchase discount taken Purchase discount lost
1,700,000 1,200,000 2,900,000 ( 50,000) 2,850,000 57,000 17,000 40,000
Problem 7-54 Answer D Accounts payable per book Goods lost in transit, FOB shipping point Purchase return Adjusted balance
2,000,000 100,000 ( 50,000) 2,050,000
Problem 7-55 Answer D Accounts payable per book Undelivered checks Unrecorded purchases on December 28 (150,000 x 98%) Purchase on December 20 (200,000 x 95%)
900,000 400,000 147,000 190,000 1,637,000
Problem 7-56 Answer A Net sales per book Sales return Goods shipped on December 31, 2008 Goods shipped on January 3, 2009 recorded on December 30, 2008 Adjusted balance
5,000,000 ( 50,000) 300,000 ( 200,000) 5,050,000
105 Problem 7-57 Answer A Gross sales Estimated sales return (10% x 4,000,000) Net sales
4,000,000 ( 400,000) 3,600,000
Problem 7-58 Answer A
January 18 28 Total FIFO cost
Units 15,000 10,000 25,000
Unit cost 23 24
Total cost 345,000 240,000 585,000
Problem 7-59 Answer A (4,500 x 73.50)
330,750
Problem 7-60 Answer A
January 10 February 8
Units 2,000 3,000 5,000
Unit cost 100 110
Weighted average unit cost (530,000/5,000)
Total cost 200,000 330,000 530,000 106
Cost of inventory (3,000 x 106)
318,000
Problem 7-61 Answer B
January 1 January 17 Balance January 28 Balance
Units 40,000 (35,000) 5,000 20,000 25,000
Unit cost 5 5 5 8 7.40
Total cost 200,000 (175,000) 25,000 160,000 185,000
Units 200 300 500 1,000 800 200
Total cost 300,000 525,000 1,000,000 1,825,000
Problem 7-62 Answer D January 1 April 3 October 1 Total Less: Sales (400 + 400) Ending inventory Average unit cost (1,825,000/1,000) Cost of inventory (200 x 1,825)
1,825 365,000
106 Problem 7-63 Answer C Units 8,000 ( 4,000) 4,000 12,000 16,000
January 1 8 20 (3,680,000/16,000 = 230)
Unit cost 200 200 200 240 230
Total cost 1,600,000 ( 800,000) 800,000 2,880,000 3,680,000
Problem 7-64 Answer C Problem 7-65 Answer B Estimated selling price Cost of disposal Net realizable value (lower than cost)
4,050,000 ( 200,000) 3,850,000
Problem 7-66 Answer B Estimated sales price Cost to complete Net realizable value
4,000,000 (1,200,000) 2,800,000
FIFO cost (lower than NRV)
2,600,000
Problem 7-67 Answer B Inventory – January 1 Purchases Goods available for sale Less: Inventory – December 31 Cost of goods sold before inventory writedown Loss on inventory writedown Cost of goods sold after inventory writedown
700,000 3,300,000 4,000,000 600,000 3,400,000 100,000 3,500,000
Problem 7-68 Answer C A (100 x 240,000) B (100 x 160,000) C (200 x 100,000)
Problem 7-69 Answer B Problem 7-70 Answer B
Sales price 24,000,000 16,000,000 20,000,000 60,000,000
Fraction 24/60 16/60 20/60
Allocated cost 6,000,000 4,000,000 5,000,000 15,000,000
107 CHAPTER 8
Problem 8-1
Problem 8-2
1. D 2. A 3. B 4. B 5. D 6. C 7. C 8. B 9. D 10. D
1. D 2. B 3. A 4. C 5. B 6. C 7. A 8. A 9. B 10. A
Problem 8-3 Answer A Inventory – January 1 Purchases Freight in Total Less: Purchase returns Goods available for sale Less: Cost of sales (4,500,000 x 60%) Inventory – March 31
650,000 3,200,000 50,000 3,250,000 75,000
Problem 8-4 Answer B Inventory – January 1 Purchases Goods available for sale Less: Cost of sales (3,200,000 x 75%) Inventory – December 31 Less: Physical inventory Missing inventory
Problem 8-5 Answer D 500,000 2,500,000 3,000,000 2,400,000 600,000 500,000 100,000
Problem 8-6 Answer D Cost of sales (7,000,000 – 1,400,000) Multiply by Sales Less: Collections Accounts receivable
3,175,000 3,825,000 2,700,000 1,125,000
5 ,600,000 140% 7,840,000 4,000,000 3,840,000
Cost of sales (3,640,000/130%) 2,800,000
Problem 8-7 Answer A Inventory – Jan. 1 Purchases Goods available for sale Less: Inventory – Dec. 31 Cost of goods sold Gross profit Total sales Less: Cash sales Sales on account Accounts receivable–Jan. 1 Total Less: Collections Accounts receivable-Dec. 31
1,200,000 2,000,000 3,200,000 1,100,000 2,100,000 900,000 3,000,000 500,000 2,500,000 800,000 3,300,000 2,600,000 700,000
108 Problem 8-8 Answer D
Problem 8-9 Answer B
Net sales = 1,200,000 x 5
6,000,000
Inventory – January 1 Purchases Goods available for sale Less: Cost of sales (6,000,000 x 60%) Inventory – December 31
1,800,000 4,500,000 6,300,000 3,600,000 2,700,000
Sales (950,000 x 8) Cost of sales (1,150,000 x 4) Gross margin
7,600,000 4,600,000 3,000,000
Problem 8-10 Answer B Sales Less: Sales returns Net sales Cost of sales: Inventory – January 1 Purchases Freight in Total Less: Purchase returns, allowances and discounts Goods available for sale Less: Inventory – December 31 Gross income
6,200,000 200,000 6,000,000 1,000,000 5,500,000 250,000 5,750,000 150,000
5,600,000 6,600,000 2,100,000
Gross profit rate on cost (1,500,000/4,500,000)
4,500,000 1,500,000 33 1/3%
Problem 8-11 Answer A Inventory, January 1 Purchases Freight in Purchase returns and allowances Purchase discounts Goods available for sale Less: Cost of sales: Sales Sales returns Net sales Cost of sales (2,100,000/125%) Inventory, December 31
500,000 2,000,000 100,000 ( 120,000) ( 80,000)
1,900,000 2,400,000
2,200,000 ( 100,000) 2,100,000 1,680,000 720,000
Problem 8-12 Answer B Sales – 2007 Cost of sales: Net purchases – 2007 Less: Inventory – December 31, 2007 Gross income
6,000,000 5,500,000 1,000,000
4,500,000 1,500,000
109 Rate in 2007 (1,500,000/6,000,000)
25%
Inventory – January 1, 2008 Net purchases – 2008 Goods available for sale Less: Cost of sales (9,000,000 x 70%) Inventory – December 31, 2008 Less: Undamaged merchandise (500,000 x 70%) Realizable value of damaged merchandise Fire loss
Rate in 2008 (25% + 5%)
30% 1,000,000 7,500,000 8,500,000 6,300,000 2,200,000
350,000 10,000
360,000 1,840,000
Problem 8-13 Answer C Problem 8-14 Answer A Sales – 2006 and 2007 Cost of sales: Inventory – January 1, 2006 Purchases – 2006 and 2007 Goods available for sale Less: Inventory – December 31, 2007 Gross income
7,400,000 850,000 5,370,000 6,220,000 1,040,000
Average rate (2,220,000/7,400,000) Inventory – January 1, 2008 Purchases – 2008 Goods available for sale Less: Cost of sales (5,000,000 x 70%) Inventory – December 31, 2008 Less: Goods consigned (300,000 x 70%) Goods in transit Fire loss
5,180,000 2,220,000 30% 1,040,000 4,360,000 5,400,000 3,500,000 1,900,000
210,000 190,000
400,000 1,500,000
Problem 8-15 Answer C Average gross profit rate (2,250,000/9,000,000) Inventory – January 1 Net purchases Goods available for sale Less: Cost of sales (5,600,000 x 75%) Inventory – September 30 Less: Undamaged goods (60,000 x 75%) Realizable value of damaged goods Fire loss
25% 660,000 4,240,000 4,900,000 4,200,000 700,000 45,000 25,000
70,000 630,000
110 Problem 8-16 Answer D
Average rate
=
3,200,000 ------------------8,000,000
=
40%
Inventory – January 1 Purchases (1,600,000 + 500,000 – 400,000) Goods available for sale Less: Cost of sales: Collections Accounts receivable – December 31 Accounts receivable – January 1 Sales Cost of sales (2,600,000 x 60%) Inventory – December 1 Less: Goods on consignment (200,000 x 60%) Salvage value Fire loss
500,000 1,700,000 2,200,000 2,640,000 440,000 ( 480,000) 2,600,000 1,560,000 640,000 120,000 20,000
140,000 500,000
Problem 8-17 Question 1 Answer A Gross profit rate: 2005 (750,000/3,000,000) 2006 (1,050,000/3,500,000) 2007 (1,295,000/3,700,000) 2008
25% 30% 35% 40%
There seems to be a trend in the gross profit rate, which is a yearly increase of 5%. Thus, it can be safely assumed that the trend continues in 2008. Inventory – January 1 Net purchases, January 1 – October 15 Goods available for sale Less: Cost of sales: Sales Sales return and allowances Net sales Cost of sales (3,800,000 x 60%) Inventory – October 15 Less: Inventory not destroyed Fire loss
500,000 3,500,000 4,000,000 3,840,000 ( 40,000) 3,800,000 2,280,000 1,720,000 320,000 1,400,000
111 Question 2 Answer D Goods available for sale Cost of sales (70% x 3,800,000) Inventory, October 15 Inventory not destroyed Fire loss
4,000,000 2,660,000 1,340,000 320,000 1,020,000
Problem 8-18 Answer D
Problem 8-19 Answer A
Problem 8-20 Answer B Net sales in 2007 Less: Cost of sales Beginning inventory Net purchases in 2007 Goods available for sale Less: Ending inventory Gross profit
8,000,000 2,000,000 4,800,000 6,800,000 1,200,000
Gross profit rate (2,400,000/8,000,000) Inventory, January 1, 2008 Net purchases – 2008 Goods available for sale Less: Cost of sales Sales Less: Sales return and allowances Net sales Cost of sales (7,800,000 x 70%) Estimated value of ending inventory Less: Cost of inventory not stolen Estimated cost of stolen inventory
5,600,000 2,400,000 30% 1,200,000 4,960,000 6,160,000
7,880,000 80,000 7,800,000 5,460,000 700,000 100,000 600,000
112 Problem 8-21 Answer A Raw materials – January 1 Purchases Freight in Raw materials available for use Less: Raw Materials – December 31 Raw materials used Direct labor Manufacturing overhead (50% x 800,000) Total manufacturing cost Add: Goods in process – January 1 Total goods in process Less: Goods in process – December 31 (squeeze) Cost of goods manufactured Add: Finished goods – January 1 Goods available for sale Less: Finished goods _ December 31 Cost of sales (70% x 3,000,000)
300,000 1,000,000 100,000
1,100,000 1,400,000 600,000 800,000 800,000 400,000 2,000,000 1,000,000 3,000,000 1,300,000 1,700,000 1,400,000 3,100,000 1,000,000 2,100,000
The amount of goods in process on December 31is computed as simply working back.
Problem 8-22 Requirement a
Balances 1 2 3 4 Adjusted
Physical inventory May 31, 2008 950,000 ( 55,000) 895,000
Purchases up to May 31, 2008 6,750,000 75,000 ( 10,000) ( 20,000) ( 55,000) 6,740,000
Purchases up to June 30, 2008 8,000,000 ( 15,000) ( 20,000) -_ __ 7,965,000
Inventory – July 1, 2007 Purchases up to May 31, 2008 Goods available for sale Less: Inventory – May 31, 2008 Cost of sales
875,000 6,740,000 7,615,000 895,000 6,720,000
Sales up to May 31, 2008 Cost of sales Gross profit
8,400,000 6,720,000 1,680,000
Rate (1,680,000/8,400,000)
20% Requirement b
Sales for year ended June 30, 2008 Less: Sales for 11 months ended May 31, 2008 Sales for June
9,600,000 8,400,000 1,200,000
113 Cost of goods sold with profit (1,100,000 x 80%) Cost of goods sold without profit Cost of goods sold during June 2008
880,000 100,000 980,000
Requirement c Inventory, July 1, 2007 Purchases for year ended June 30, 2008 (as adjusted) Goods available for sale Less: Cost of goods sold Sales with profit (9,500,000 x 80%) Sales without profit Inventory, June 30, 2008
875,000 7,965,000 8,840,000 7,600,000 100,000
7,700,000 1,140,000
Problem 8-23 1. Accounts receivable – April 30 Writeoff Collections (440,000 – 20,000) Total Less: Accounts receivable – March 31 Sales for April Sales up to March 31 Total sales
1,040,000 60,000 420,000 1,520,000 920,000 600,000 3,600,000 4,200,000
2. Accounts payable – April 30 for April shipments Payment for April merchandise shipments Purchases of April Purchases up to March 31 Total purchases
340,000 80,000 420,000 1,680,000 2,100,000
3. Inventory – January 1 Purchases Less: Purchases return Goods available for sale Less: Cost of sales (4,200,000 x 60%) Inventory – April 30 Less: Goods in transit Salvage value Fire loss
1,880,000 2,100,000 20,000
100,000 140,000
2,080,000 3,960,000 2,520,000 1,440,000 240,000 1,200,000
114 Problem 8-24 Answer B Cost 280,000 2,480,000 75,000
Inventory – January 1 Purchases Freight in Markup Markup cancellation GAS Cost ratio (2,835/6,300)
Retail 700,000 5,160,000
__ __ __ _ 2,835,000
500,000 ( 60,000) 6,300,000
_ __ _ 2,835,000
( 250,000) 50,000 6,100,000
45%
Markdown Markdown cancellation GAS – Average Sales Shrinkage (2% x 5,000,000) Inventory – December 31
(5,000,000) ( 100,000) 1,000,000
Conservative cost (1,000,000 x 45%)
450,000
The “approximate lower of average cost or market” retail is the same as the conservative or conventional retail.
Problem 8-25 Answer C Cost 720,000 4,080,000
Inventory – January 1 Purchases Markup Markdown GAS Cost ratio (4,800/7,500)
__ _____ 4,800,000 64%
Sales Shoplifting losses Inventory Average cost (1,500,000 x 64%)
Retail 1,000,000 6,300,000 700,000 ( 500,000) 7,500,000
(5,900,000) ( 100,000) 1,500,000 960,000
115 Problem 8-26 Answer D Cost Beginning inventory and purchases Net markup GAS
6,000,000 ________ 6,000,000
Problem 8-27 Answer A Retail 9,200,000 400,000 9,600,000
Cost ratio (6,000/9,600) = 62.5%
Retail 1,500,000 5,500,000 500,000 __ _____ (1,000,000) 3,000,000 5,000,000
Cost ratio (3,000/5,000) = 60%
Sales Net markdown Ending inventory Conservative cost (1,200,000 x 62.5%)
Beginning inventory Purchases Net markups Net markdown Net purchases
Cost 600,000 3,000,000
(7,800,000) ( 600,000) 1,200,000
750,000
Goods available for sale Less: Ending inventory Cost of sales
GAS Sales Ending inventory
3,600,000
FIFO cost (2,000,000 x 60%)
6,500,000 (4,500,000) 2,000,000
1,200,000
6,000,000 750,000 5,250,000
Problem 8-28 Answer A Inventory – January 1 Purchases Freight in Net markup Net markdown Net purchases (6,000/8,000) Goods available for sale Sales Inventory – December 31
Cost 1,200,000 5,600,000 400,000
75%
FIFO cost (2,200,000 x 75%)
________ 6,000,000 7,200,000
Retail 1,800,000 7,200,000 1,400,000 600,000) 8,000,000 9,800,000 (7,600,000) 2,200,000
(
1,650,000
Goods available for sale Less: Inventory – December 31 Cost of goods sold
7,200,000 1,650,000 5,550,000
Problem 8-29 Answer C Cost 4,900,000
Available for sale Markdown Sales Inventory, December 31 Average cost (1,400,000 x 71%) Cost ratio (4,900,000 / 6,900,000)
994,000 71%
Retail 7,000,000 ( 100,000) (5,500,000) 1,400,000
116 Problem 8-30
Inventory, January 1 Purchases Transportation in Purchases return Purchase discount Markup Cancelation of markup Goods available for sale – conservative Cost ratio – conservative (357/510) Markdown Cancelation of markdown Goods available for sale – average cost Cost ratio – average cost (357/476) Less: Sales Sales return Inventory, December 31 at selling price
Cost 500,000 3,070,000 70,000 ( 25,000) ( 45,000)
Retail 770,000 4,300,000 (
40,000)
________ 3,570,000
100,000 ( 30,000) 5,100,000
________ 3,570,000
( 350,000) 10,000 4,760,000
70%
75% (
Conservative cost (840,000 x 70%) Average cost (840,000 x 75%)
4,000,000 80,000)
3,920,000 840,000
588,000 630,000
Problem 8-31
Beginning inventory Purchases Freight in Purchase returns Purchase allowances Departmental transfer in Markup Goods available for sale – conventional Cost ratio (4,800/8,000) Markdown Goods available for sale – average Cost ratio (4,800/7,500) Less: Sales Employee discount Spoilage and breakage Ending inventory Conservative cost (600,000 x 60%) Average cost (600,000 x 64%)
Cost 340,000 4,500,000 100,000 ( 150,000) ( 90,000) 100,000 ________ 4,800,000
Retail 640,000 7,300,000 ( 250,000) 160,000 150,000 8,000,000
60% ________ 4,800,000
( 500,000) 7,500,000
64% 6,600,000 100,000 200,000
360,000 384,000
6,900,000 600,000
117 Problem 8-32 Beginning inventory Purchases Freight in Markup Markup cancellation Goods available for sale – conservative Cost ratio (3,016/3,770) Markdown Markdown cancellation Goods available for sale – average
Cost 168,000 2,806,000 42,000 _______ 3,016,000
Retail 400,000 3,100,000 300,000 ( 30,000) 3,770,000
80% ( _________ 3,016,000
Less: Sales Shrinkage (4% x 3,000,000) Ending inventory
3,000,000 120,000
Conservative cost (540,000 x 80%) Physical inventory (500,000 x 80%) Shortage
432,000 400,000 32,000
Inventory, December 31 Inventory shortage Income summary
400,000 32,000
150,000) 40,000 3,660,000
3,120,000 540,000
432,000
Problem 8-33 1. Opening inventory Purchases Freight in Purchase allowances Departmental transfer – credit Additional markup Markup cancellation Goods available for sale – conventional Cost ratio (5,250/7,000) Markdown (500,000 – 400,000) Goods available for sale – average
Cost 1,650,000 3,700,000 200,000 ( 100,000) ( 200,000) ________ 5,250,000
( 300,000) 180,000 ( 30,000) 7,000,000
________ 5,250,000
( 100,000) 6,900,000
75%
Less: Sales Inventory shortage Ending inventory at sales price
4,000,000 100,000
Ending inventory at cost (2,800,000 x 75%)
2,100,000
2. Goods available for sale Less: Ending inventory Cost of sales
Retail 2,200,000 4,950,000
4,100,000 2,800,000
5,250,000 2,100,000 3,150,000
118 Problem 8-34 Inventory, January 1 Purchases Markup (5,000 x 100) Markup cancelation (1,000 x 100) Goods available for sale – conservative Markdown Goods available for sale – average
Cost 560,000 4,000,000
(60%) (64%)
_________ 4,560,000 _________ 4,560,000
Net sales Inventory, December 31
Retail 1,000,000 6,200,000 500,000 ( 100,000) 7,600,000 ( 475,000) 7,125,000 (5,200,000) 1,925,000
Conservative cost (1,925,000 x 60%) Average cost (1,925,000 x 64%)
1,155,000 1,232,000
Problem 8-35 Finished goods – January 1 Cost of goods manufactured (squeeze Goods available for sale Less: Finished goods – December 31 Cost of goods sold
Cost 144,000 1,200,000 1,344,000 504,000 840,000
Retail 240,000 2,000,000 2,240,000 840,000 1,400,000
The amount of goods manufactured at retail is determined by simply working back.
Cost ratio
=
= =
Goods manufactured at cost ------------------------------------------------Goods manufactured at retail 1,200,000/2,000,000 60%
Finished goods: January 1 - 240,000 x 60%
144,000
December 31 - 840,000 x 60%
504,000
Problem 8-36 Inventory – January 1, 2008 Purchases Net markup Net markdown Net purchases (65%) Goods available for sale
Cost 556,800 4,576,000 ________ 4,576,000 5,132,800
Sales Inventory – December 31, 2008 FIFO inventory (65% x 1,128,000)
Retail 928,000 7,028,000 42,000 ( 30,000) 7,040,000 7,968,000 (6,840,000) 1,128,000
733,200
1,128,000
119 Cost 733,200 4,760,000
Inventory – January 1, 2009 Purchases Net markup Net markdown Net purchases (70%) Goods available for sale
________ 4,760,000 5,493,200
Sales Inventory – December 31, 2009
Retail 1,128,000 6,812,000 56,000 ( 68,000) 6,800,000 7,928,000 (6,928,000) 1,000,000
FIFO inventory (70% x 1,000,000)
700,000
1,000,000
Problem 8-37 Inventory, January 1, 2008 Purchases adjusted for markup and markdown Goods available for sale
72%
Cost 420,000 5,011,200 5,431,200
Sales – 2008 Inventory, December 31, 2008
(6,839,000) 721,000
FIFO cost (721,000 x 72%)
Inventory, January 1, 2009 Purchases adjusted Goods available for sale
519,120
70%
519,120 4,970,000 5,489,120
Sales – 2009 Inventory, December 31, 2009 FIFO cost (788,800 x 70%)
Retail 600,000 6,960,000 7,560,000
721,000 7,100,000 7,821,000 (7,033,000) 788,000
551,600
120 CHAPTER 9 Problem 9-1 1. 2. 3. 4. 5.
A C C A A
6. 7. 8. 9. 10.
Problem 9-2 D D B B B
1. 2. 3. 4. 5.
A D C B C
6. 7. 8. 9. 10.
Problem 9-3 B A C B D
1. 2. 3. 4. 5.
D A C A C
Problem 9-4 Red White Blue Green Total 1. Trading securities Cash 2. Unrealized loss – trading securities Trading securities (3,800,000 – 3,750,000)
Cost 300,000 500,000 1,000,000 2,000,000 3,800,000
Market 250,000 700,000 1,100,000 1,700,000 3,750,000
3,800,000 3,800,000 50,000 50,000
Problem 9-5 1. Unrealized loss – TS Trading securities 2. Cash Loss on sale of trading securities Trading securities 3. Trading securities (680,000 – 610,000) Unrealized gain – TS
A Common (4,000 x 80) C Preferred (2,000 x 180)
60,000 60,000 140,000 20,000 160,000 70,000 70,000 Carrying amount 300,000 310,000 610,000
Market 320,000 360,000 680,000
Problem 9-6 December 31, 2008: Trading securities Unrealized gain - TS (2,500,000 – 2,000,000)
500,000
Unrealized loss – AFS Available for sale securities
100,000
500,000
100,000
121 December 31, 2009: Unrealized loss – TS Trading securities (2,500,000 – 2,200,000)
300,000
Available for sale securities - AFS Unrealized loss – AFS Unrealized gain – AFS
200,000
300,000
100,000 100,000
Problem 9-7 December 31, 2008: Unrealized loss – AFS Available for sale securities
150,000 150,000
December 31, 2009: Available for sale securities – AFS Unrealized loss – AFS
50,000 50,000
Problem 9-8 1. Unrealized loss – AFS Available for sale securities
100,000
2. Cash Loss on sale of AFS securities Available for sale securities Unrealized loss – AFS
2,100,000 400,000
100,000
2,000,000 500,000
3. No entry XYZ RST
Unrealized loss in 2008 Unrealized loss – 12/31/2008 (600,000 – 500,000) Cumulative unrealized loss – 12/31/2009 Total cost (1,000,000 + 500,000) Market value Cumulative unrealized loss
Carrying amount 1,200,000 200,000 1,400,000
Market 1,200,000 200,000 1,400,000 0 ( 100,000) ( 100,000) 1,500,000 1,400,000 100,000
122 Problem 9-9 2008 1. Trading securities Available for sale securities Cash
2,900,000 3,600,000 6,500,000
2. Unrealized loss – TS Trading securities (2,900,000 – 2,400,000)
500,000
3. Available for sale securities Unrealized gain – AFS (3,600,000 – 4,000,000)
400,000
2009 1. Cash Trading securities (1/2 x 1,400,000) Gain on sale of TS 2. Cash Unrealized gain – AFS (1/2 x 500,000) Available for sale securities (1/2 x 2,500,000) Gain on sale of AFS securities 3. Trading securities Unrealized gain – TS (2,000,000 – 1,700,000)
Security One Security Two
4. Available for sale securities Unrealized gain – AFS Security Three Security Four
Security Three Security Four (1/2 x 2,000,000) Total cost Market value Cumulative unrealized gain – 12/31/2009 Unrealized gain – AFS 12/31/2008 (400,000 – 250,000) Unrealized gain in 2009 Cumulative unrealized gain – 12/31/2009
500,000
400,000
1,000,000 700,000 300,000 1,300,000 250,000 1,250,000 300,000 300,000 300,000 Carrying value 700,000 1,000,000 1,700,000
Market 900,000 1,100,000 2,000,000
50,000 50,000 1,500,000 1,250,000 2,750,000
1,600,000 1,200,000 2,800,000 1,600,000 1,000,000 2,600,000 2,800,000 200,000 150,000 50,000 200,000
123 Problem 9-10 2008 Jan. 1
Available for sale securities Cash
Dec. 31 Unrealized loss – AFS Available for sale securities 2009 Dec. 31 Investment equity security Unrealized loss – transfer of AFS Available for sale securities Unrealized loss – AFS 31 Available for sale securities Unrealized loss – AFS Unrealized gain – AFS
1,320,000 1,320,000 80,000 80,000
650,000 70,000 650,000 70,000 110,000 10,000 100,000
Market of W and X – 12/31/2009 Market of W and X – 12/31/2008 Increase in value
700,000 590,000 110,000
Problem 9-11 December 31, 2008 Unrealized loss – TS Trading securities Available for sale securities – AFS Unrealized gain – AFS December 31, 2009 Trading securities Unrealized gain – TS (5,500,000 – 4,600,000) Available for sale securities Unrealized gain – AFS (3,300,000 – 3,100,000)
400,000 400,000 100,000 100,000
900,000 900,000 200,000 200,000
Problem 9-12 01/01/2008
12/31/2008
Trading securities AFS securities Cash Trading securities Unrealized gain – TS
2,000,000 4,000,000 6,000,000 500,000 500,000
124 12/31/2008
12/31/2009
12/31/2010
Unrealized loss – AFS AFS securities
700,000
Trading securities Unrealized gain - TS
200,000
Impairment loss – AFS Unrealized loss – AFS
700,000
Unrealized loss – TS Trading securities
600,000
AFS securities Unrealized gain – AFS (4,200,000 – 3,300,000)
900,000
700,000
200,000
700,000
600,000
900,000
Problem 9-13 2008
2009
Available for sale securities Cash
6,000,000 6,000,000
Unrealized loss – AFS Available for sale securities (6,000,000 – 5,700,000)
300,000
Unrealized loss – AFS Available for sale securities (5,700,000 – 5,200,000)
500,000
Held to maturity securities Available for sale securities
300,000
500,000 5,200,000 5,200,000
The total unrealized loss of P800,000 (300,000 + 500,000) will still be reported in equity but it will be subsequently amortized through interest income over the remaining term of the debt securities.
Problem 9-14 2008 Jan. 1 Held to maturity securities Cash Dec. 31 Cash (8% x 4,000,000) Interest income 31 Held to maturity securities Interest income Interest income (10% x 3,649,600) Interest received Amortization
3,649,600 3,649,600 320,000 320,000 44,960 44,960 364,960 320,000 44,960
125 2009 Dec. 31 Cash Interest income 31 Held to maturity securities Interest income
320,000 320,000 49,456 49,456
Interest income (10% x 3,694,560) Interest received Amortization 31 Available for sale securities Held to maturity securities 31 Available for sale securities Unrealized gain – AFS
369,456 320,000 49,456 3,744,016 3,744,016 455,984 455,984
Market value (4,000,000 x 105) Book value Unrealized gain
4,200,000 3,744,016 455,984
Problem 9-15 01/01/2008
12/31/2008
06/30/2009
06/30/2009
12/31/2009
Available for sale securities Cash
6,500,000 6,500,000
Unrealized loss – AFS Available for sale securities (6,500,000 – 5,750,000)
750,000
Unrealized loss – AFS Available for sale securities (5,750,000 – 5,300,000)
450,000
Held to maturity securities Available for sale securities
5,300,000
750,000
450,000
5,300,000
No entry is required to recognize the decrease in value of P400,000 (P5,300,000 – P4,900,000).
The total unrealized loss of P1,200,000 on the reclassification of AFS securities will continue to be reported as part of equity as a deduction. However, it is amortized through interest income over the remaining life of the debt security starting June 30, 2009.
126 Problem 9-16 Answer A A common B common C preferred D preferred Total
Cost 1,000,000 1,500,000 2,000,000 2,500,000 7,000,000
Market 800,000 1,800,000 1,700,000 2,600,000 6,900,000
Cost 1,000,000 900,000 1,100,000 3,000,000
Market 900,000 1,100,000 800,000 2,800,000
Problem 9-17 Answer A Man Kemo Penn Total Unrealized loss (3,000,000 – 2,800,000)
200,000
Problem 9-18 Answer A Total market value – December 31, 2008 Total market value – December 31, 2007 Unrealized gain
2,000,000 1,650,000 350,000
Problem 9-19 Answer A Total market value – December 31, 2008 Total market value – December 31, 2007 Unrealized loss in 2008 Unrealized loss – December 31, 2007 Total unrealized loss – December 31, 2008
4,500,000 4,800,000 ( 300,000) ( 200,000) ( 500,000)
Problem 9-20 Answer C Market value – December 31, 2008 Market value – December 31, 2007 Unrealized gain in 2008 Unrealized loss – December 31, 2007 Net unrealized gain – December 31, 2008
1,600,000 1,300,000 300,000 ( 200,000) 100,000
Problem 9-21 Question 1 – Answer B Market value – December 31, 2008 Market value – December 31, 2007 Unrealized gain – trading
1,550,000 1,000,000 550,000
127 Question 2 – Answer A Market value – December 31, 2008 Market value – December 31, 2007 Unrealized gain in 2008 Unrealized loss – December 31, 2007 (1,500,000 – 1,200,000) Net unrealized loss – December 31, 2008
1,300,000 1,200,000 100,000 ( 300,000) ( 200,000)
Problem 9-22 Answer A The unrealized loss of P40,000 on trading securities is shown in the income statement. However, the unrealized loss of P100,000 on available for sale securities is recognized in equity.
Problem 9-23 Answer B Unrealized losses Unrealized gains Net unrealized loss – December 31, 2008
260,000 40,000 220,000
Problem 9-24 Answer B Net sales price Unrealized loss related to B Net amount Carrying amount of B Loss on sale
1,450,000 ( 150,000) 1,300,000 (1,550,000) ( 250,000)
Net sales price (1,500,000 – 50,000) Less: Cost of B Loss on sale
1,450,000 1,700,000 ( 250,000)
Problem 9-25 Answer C Market value – December 31, 2008 Market value – December 31, 2007 Unrealized gain in 2008 Unrealized loss – December 31, 2007 Net unrealized loss – December 31, 2008
850,000 800,000 50,000 (200,000) (150,000)
Problem 9-26 Answer C Available for sale equity securities, at cost Unrealized loss Market value
2,200,000 ( 200,000) 2,000,000
128 Problem 9-27 Answer C 12/31/2007
12/31/2008
Unrealized loss - AFS Available for sale securities (2,000,000 – 1,800,000)
200,000
Available for sale securities Unrealized loss – AFS (1,850,000 – 1,800,000)
50,000
200,000
50,000
129 CHAPTER 10 Problem 10-1 1. 2. 3. 4. 5.
C C A A C
6. 7. 8. 9. 10.
D B D A C
Problem 10-2 A (8,000 x 100) B (16,000 x 150) C (1,000,000 x 90%)
Market value 800,000 2,400,000 900,000 4,100,000
Investment in A shares Investment in B shares Investment in C Bonds Cash
Fraction 8/41 24/41 9/41
Allocated cost 600,000 1,800,000 675,000 3,075,000
600,000 1,800,000 675,000 3,075,000
Problem 10-3 Requirement 1 a. Investment in equity securities Cash
309,000
b. Investment in equity securities Cash
1,030,000
309,000
1,030,000
Requirement 2 a. Cash Loss on sale of investment Investment in equity securities
405,000 32,750 437,750
Lot No. 1 – 1,000 shares Lot No. 2 - 500 shares (500/4,000 x 1,030,000)
b. Cash Investment in equity securities (1,500/5,000 x 1,339,000) Gain on sale of investment
309,000 128,750 437,750 405,000 401,700 3,300
Problem 10-4 July 15
Cash Dividend income (5,000 shares x 5)
25,000 25,000
130 Dec. 15
28
Memo – Received 1,000 shares representing 20% stock dividend on 5,000 original shares held. Cash (3,000 shares x 60) Investment in equity securities Gain on sale of investment
180,000 133,000 47,000
Lot No. 1 (2,400 shares) Lot No. 2 (600/3,600 x 198,000) Cost of investment sold
100,000 33,000 133,000
Problem 10-5 1. Investment in XYZ ordinary shares (40,000 x 50) Cash
2,000,000 2,000,000
2. Memo – Received 200,000 XYZ ordinary shares as a result of 5 for 1 split of 40,000 original shares. 3. Investment in XYZ preference shares Investment in XYZ ordinary shares
Ordinary shares (200,000 x 15) Preference shares (20,000 x 10)
125,000 125,000 Market value 3,000,000 200,000 3,200,000
4. Investment in ABC ordinary shares Dividend income (200,000/4 = 50,000 x 6)
Fraction 30/32 2/32
Cost 1,875,000 125,000 2,000,000
300,000 300,000
5. Cash (80,000 x 15) 1,200,000 Investment in XYZ ordinary shares (80,000/200,000 x 1,875,000) Gain on sale of investment
750,000 450,000
Problem 10-6 1. Investment in ANA ordinary shares Cash
300,000
2. Investment in Benguet ordinary shares Dividend income (2,000 x 60)
120,000
3. Investment in ANA ordinary shares Cash
420,000
4. Cash Dividend income (12% x P200 = 24 x 5,000 x 1/2)
300,000
120,000
420,000 60,000 60,000
131 5. Memo – Received 20,000 new ANA ordinary shares as a result of a 2 for 1 split of 10,000 original shares. 6. Cash (680,000 – 34,000) Investment in ANA ordinary shares (8,000/20,000 x 720,000) Gain on sale of investment
SMC preference share Benguet ordinary share Benguet ordinary share ANA ordinary share
646,000 288,000 358,000
Shares
Cost
5,000 10,000 2,000 12,000 29,000
1,200,000 1,000,000 120,000 432,000 2,752,000
Problem 10-7 1. Investment in ABC ordinary shares Cash
720,000 720,000
2. Memo – Received 2,000 shares as 20% stock dividend on 10,000 original shares. Shares now held, 12,000. 3. Cash (2,000 x 70) 140,000 Investment in ABC ordinary shares (2,000/12,000 x 720,000) Gain on sale of investment
120,000 20,000
4. Investment in ABC preference shares (5,000 x 70) Investment in ABC ordinary shares (5,000/10,000 x 600,000) Gain on exchange
350,000 300,000 50,000
5. Investment in ABC ordinary shares Cash (5,000 x 20)
100,000 100,000
Problem 10-8 a. 2004
2005
2006
2007
Cash Investment in equity securities
400,000
Cash Dividend income Investment in equity securities
400,000
Cash Dividend income Investment in equity securities
400,000
400,000
100,000 300,000
Cash 400,000 Dividend income Investment in equity securities (1,000,000 – 950,000) Gain on investment
150,000 250,000
200,000 50,000 150,000
132 2008
b.
Cash Dividend income Gain on investment
400,000 250,000 150,000
The investment account has been totally eliminated as of December 31, 2007 because the liquidating dividends received exceed the cost of investment. Hence, there is no more investment account to be reported in the December 31, 2008 statement of financial position, but such fact should be disclosed in the notes to financial statements to the effect that the company is still the owner of 10,000 shares with a zero cost.
Problem 10-9 1. Investment in equity securities Cash
1,800,000 1,800,000
2. 10,000 rights 3. Cost of rights (10/200 x 1,800,000)
90,000
4. Stock rights Investment in equity securities
90,000
5. Investment in equity securities Cash (10,000/5 = 2,000 x 150) Stock rights
390,000
6. Cash (10,000 x 10) Stock rights Gain on sale of rights
100,000
90,000
300,000 90,000
90,000 10,000
7. Loss on stock rights Stock rights
90,000 90,000
Problem 10-10 Requirement 1 125 - 100 Theoretical value = --------------------- = 5.00 per right 4+1 a. Stock rights (5/125 x 2,100,000) Investment in equity securities b. Investment in equity securities Stock rights Cash (25,000/4 = 6,250 x 100)
84,000 84,000 709,000 84,000 625,000
133 Requirement 2 125 - 100 Theoretical value = --------------------- = 6.25 per right 4 a. Stock rights (6.25/131.25 x 2,100,000) Investment in equity securities
100,000
b. Investment in equity securities Stock rights Cash
725,000
100,000
100,000 625,000
Problem 10-11 1. Stock rights (10/100 x 3,000,000) Investment in equity securities 2. Investment in equity securities Stock rights (30,000/40,000 x 300,000) Cash (15,000 shares x 80)
300,000 300,000 1,425,000 225,000 1,200,000
3. Cash (6,000 x 10) Stock rights (6,000/40,000 x 300,000) Gain on sale of rights
60,000
4. Loss on stock rights (4,000/40,000 x 300,000) Stock rights
30,000
45,000 15,000
30,000
Shares First acquisition (3,000,000 – 300,000) New acquisition
40,000 15,000 55,000
Cost 2,700,000 1,425,000 4,125,000
Problem 10-12 1. Investment in equity securities Cash
3,200,000 3,200,000
2. Memo – Received 20,000 shares as stock dividend on 80,000 original shares. Shares now held, 100,000. 3. Cash (100,000 x 5) Dividend income
500,000
4. Stock rights (5/40 x 3,200,000) Investment in equity securities
400,000
500,000
400,000
134 5. Cash (40,000 x 5) Stock rights (40,000/100,000 x 400,000) Gain on sale of rights
200,000
6. Investment in equity securities Stock rights (60,000/100,000 x 400,000) Cash (60,000/5 = 12,000 x 30)
600,000
7. Cash (80,000 x 35) Investment in equity securities (80,000/100,000 x 2,800,000) Gain on sale of investment
Original acquisition New acquisition
160,000 40,000
240,000 360,000 2,800,000 2,240,000 560,000 Shares 20,000 12,000 32,000
Cost 560,000 600,000 1,160,000
Problem 10-13 2008 Aug. 1
Oct. 1 2009 July 1
Aug. 1
Investment in equity securities Cash
60,000
Investment in equity securities Cash
560,000
Investment in equity securities Cash
480,000
Cash Investment in equity securities Gain on sale of investment
500,000
60,000
560,000
480,000
340,000 160,000
Lot 1 (1,000 shares) Lot 2 (4,000/8,000 x 560,000) Cost of investment sold 2010 Feb. 1
Nov. 1
60,000 280,000 340,000
Received 5,000 shares representing 50% stock dividend on 10,000 remaining shares held. Shares now held, 15,000. Stock rights Investment in equity securities Lot 2 – 6,000 rights (10/80 x 280,000) Lot 3 – 9,000 rights (10/80 x 480,000) Cost of rights received
95,000 95,000 35,000 60,000 95,000
135 2010 Dec. 1
Cash (15,000 x 10) Stock rights Gain on sale of stock rights
Summary of investments Lot 2 (280,000 – 35,000) Lot 3 (480,000 – 60,000) Total
150,000 95,000 55,000 Shares 6,000 9,000 15,000
Cost 245,000 420,000 665,000
Problem 10-14 Jan. 2
Mar. 1
Apr. 1
July 1
Investment in King Corporation Cash
700,000
Investment in Plastic Company Cash
660,000
Cash (10,000 x 5) Dividend income
700,000
660,000 50,000 50,000
Received 2,000 shares as 20% stock dividend on 10,000 Plastic Company shares originally held. Shares now held, 12,000.
Aug. 1 Investment in Makati Corporation Cash
500,000 500,000
Oct. 1 Received 60,000 new shares of Plastic Company as a result of a 5 for 1 split of 12,000 original shares. 1 Cash (10,000 x 5) Dividend income 31 Stock rights (3/33 x 660,000) Investment in Plastic Company
50,000 50,000 60,000 60,000
Nov. 15 Investment in Plastic Company Cash (6,000 shares x 20) Stock rights
180,000
Dec. 1 Cash (66,000 shares x 5) Dividend income
330,000
15 Cash (10,000 shares x 30) Investment in Plastic Company (10,000/60,000 x 600,000) Gain on sale of investment
120,000 60,000
330,000 300,000 100,000 200,000
136 Summary of investments King Corporation common Plastic Company common Block 1 Block 2 Makati Corporation common
Shares 10,000
Cost 700,000
50,000 6,000 10,000 76,000
500,000 180,000 500,000 1,880,000
Of course, the investments will simply be described as “investments in equity securities” in the balance sheet.
Problem 10-15 Answer A Purchase price (4,000 x P100) Brokerage Total Less: Dividend purchased (4,000 x 5) Acquisition cost
400,000 12,000 412,000 20,000 392,000
Problem 10-16 Answer D Fair value of asset given (land)
3,000,000
Problem 10-17 Answer D Original shares acquired January 15 Stock dividend on March 31 (20% x 50,000) Total shares Dividend income – cash dividend on December 15 (60,000 x 5)
50,000 10,000 60,000 300,000
Problem 10-18 Answer C Dividend income – cash dividend on July 1 Original shares on March 1 Stock dividend on December 1 (10% x 20,000) Total shares
100,000 20,000 2,000 22,000
Problem 10-19 Answer B Original shares on October 1, 2007 Stock dividend on November 30, 2008 (10%) Total shares Shares sold on December 31, 2008 Balance
40,000 4,000 44,000 ( 4,000) 40,000
137 Sales price Cost of shares sold (4,000/44,000 x 6,600,000) Gain on sale
1,000,000 ( 600,000) 400,000
Problem 10-20 Answer B Shares received as property dividend (5,000/5)
1,000
Dividend income (1,000 x 100)
100,000
Problem 10-21 Answer D Cash dividend (10% x 500,000)
50,000
Problem 10-22 Answer A Dividend income (2,000 x 60)
120,000
Problem 10-23 Answer C Sales price (80,000 x 30) Less: Cost of shares sold (80,000 x 40) Loss on disposal
2,400,000 3,200,000 ( 800,000)
Problem 10-24 Answer A Original shares Stock dividend – 20% Total shares
June 1 20,000 4,000 24,000
Sales price (30,000 x 125) Cost of shares sold: From June 1 – 24,000 shares 2,000,000 From December 1 – 6,000 shares (6,000 / 36,000 x 3,600,000) 600,000 Gain on sale
December 1 30,000 6,000 36,000 3,750,000
2,600,000 1,150,000
Problem 10-25 Answer B Cost of rights (5/100 x 8,000,000)
400,000
Problem 10-26 Answer B Sales price (50,000 x 10) Cost of rights sold (10/100 x 3,600,000) Gain on sale of rights
500,000 360,000 140,000
