PFA 1

CHAPTER 2- STATEMENT OF FINANCIAL POSITION

Jerlyn S. Bautro

Problem 2-1 (AICPA Adapted)

Kenya Company provided the following information on December 31, 2019:

Cash in bank, net of bank overdraft ₱500,000

5,000,000
Petty cash, unreplenished petty cash expenses ₱10,000 50,000
Notes receivable
4,000,000
Accounts receivable, net of customers’ accounts with credit balances ₱
1,500,000
6,000,000
Inventory
3,000,000
Bond sinking fund
3,000,000
Total current assets
21,050,000
Accounts payable, net of suppliers’ accounts with debit balances of ₱
1,000,000
7,000,000
Notes payable
4,000,000
Bond payable due June 30,2020
3,000,000
Accrued expenses
2,000,000
Total current liabilities
16,000,000

1. What amount should be reported as total current assets on December 31, 2019?

a. 19,040,000
b. 20,040,000
c. 20,050,000
d. 24,040,000
2. What amount should be reported as total current liabilities on December 31, 2019?

a. 19,000,000
b. 16,000,000
c. 15,500,000
d. 15,000,000

Solution:

Question 1

5,500,000
Cash in bank ( 5,000,000 + 500, 000)
40,00
Petty cash ( 50,000 – 10, 000) 0
4,000,00
Notes receivable 0
7,500,00
Accounts receivable (6,000,000 + 1,500,000) 0
3,000,00
Inventory 0
3,000,00
Bond sinking fund
0
Debit balances in accounts payable 1,000,00
0

24,040,00
Total current assets 0

The bank overdraft is not netted against the cash in bank but should be classified as current
liability.

The customers’ credit balances are not netted against accounts receivable but should be
classified as current liability.

The bond sinking fund is classified as current asset because the bond payable is already
classified as current liability.

The classification of the bond sinking fund should parallel the classification of the related
liability.
Question 2

500,00
Bank overdraft 0
1,500,00
Credit balances in accounts receivable 0
8,000,00
Accounts payable ( 7,000,000 + 1,000,00 ) 0
4,000,00
Notes payable 0
3,000,00
Bond payable 0
2,000,00
Accrued expenses
0
19,000,00
Total current liabilities 0

The debit balances in suppliers’ accounts are not netted against accounts payable but should be
classified as current asset.
Problem 2-2 (AICPA Adapted)

Gold Company provided the following trial balance on December 31, 2019:

Cash overdraft 100,000

Accounts receivable
350,000
Inventory
600,000
Prepaid expenses
100,000
Land held for sale
1,000,000
Property, plant and equipment
950,000
Accounts payable 200,000
Accrued expenses 150,000
Ordinary share capital 1,500,000
Share premium 250,000
Retained earnings 800,000
3,000,000 3,000,000

Checks amounting to ₱300,000 were written to vendors and recorded on December 29, 2019
resulting in a cash overdraft of ₱100,000. The checks were mailed on January 15, 2020.

Land held for sale was sold for cash on January 31, 2020.

The entity issued the financial statements on March 31, 2020.

1. What total amount should be reported as current assets?

a. 2,250,000
b. 2,050,000
c. 1,950,000
d. 1,250,000

2. What total amount should be reported as current liabilities?

a. 650,000
b. 500,000
c. 350,000
d. 300,000
3. What is the total shareholders’ equity?

a. 2,550,000
b. 1,750,000
c. 1,500,000
d. 2,300,000

Solutions:
Question 1

200,000
Cash
350,000
Accounts receivable
600,000
Inventory
100,000
Prepaid expense
1,000,00
0
Land held for sale
2,250,0
00
Total current assets

The undelivered checks should be adjusted as follows:

Cash 300,000
Accounts payable 300,000

Cash (overdraft) (100,000)

Debit adjustment 300,000

Adjusted cash balance 200,000

Under PFRS 5, the land held for sale should be reported as current asset.

Question 2
 Accounts payable 500,00
0
Accrued expenses 150,00
0
Total current liabilities 650,00
0
Accounts payable 200,00
0
Undelivered checks 300,00
0
Adjusted accounts payable 500,00
0

Question 3

Ordinary share capital 1,500,00

0
Share premium 250,00
0
Retained earnings 800,00
0
Total shareholders’ equity 2,550,00
0

Problem 2-3 (AICPA Adopted)

Trey Company provided the following trial balance at year-end which had been adjusted except
for income tax expense:

1,250,00
Cash 0
Accounts receivable 1,650,000
Prepaid taxes 500,000
Accounts payable 200,000
Share capital 1,000,000
Share premium 500,000
Retained earnings-beginning 1,500,000
Foreign currency translation adjustment 800,00
0
Revenue 4,000,000
 Expenses 3,000,000
7,200,000 7,200,000

During the current year, estimated tax payments of ₱500,000 due from customer were charged to
prepaid taxes. The entity has not yet recorded income tax expense.

There were no differences between financial and taxable income. The tax rate is 30%.

Included in accounts receivable is ₱500,000 due from customer. Special terms granted to this
customer require payment in equal semiannual installments of ₱125,000 every April 1 and
October 1.

1. What amount should be reported as total current assets at year-end?

a. 2,850,000
b. 2,650,000
c. 2,900,000
d. 3,100,000

2. What amount should be reported as retained earnings at year-end?

a. 3,500,000
b. 2,000,000
c. 2,200,000
d. 1,400,000

Solutions:

Question 1

Cash 1,250,000
Accounts receivable 1,400,000
Prepaid taxes 200,000
Total current assets 2,850,000
Accounts receivable 1,650,000
Noncurrent portion ( 125,000 + 125,000 ) (250,000)
 Current portion 1,400,000

Entry made
Prepaid taxes 500,000
Cash 500,000

Adjusting entry

Income tax expense 300,000

Prepaid taxes 300,000

Prepaid of income taxes 500,000

Income tax expense 300,000
Prepaid taxes – year-end 200,000

Question 2

Revenue 4,000,000
Expenses (3,000,000)
Income before income tax 1,000,000
Income tax expense ( 30% * 1,000,000 ) (300,000)
Net income 700,000
Retained earnings – beginning 1,500,000
Retained earnings - ending 2,200,000

The debit balances in the foreign currency translation adjustment is a component of other
comprehensive income and a deduction from total shareholders’ equity because it is a translation
loss.
Problem 2-4 (AICPA Adapted)

Mint Company provided the following account balances at year-end which had been adjusted
except for income tax expense:

Cash 600,000
Accounts receivable 3,500,000
Cost in excess of billings on long-term contracts 1,600,000
Billing in excess of cost on long-term contracts 700,000
Prepaid taxes 450,000
Property, plant, and equipment, at carrying amount 1,510,000
Note payable – noncurrent 1,620,000
Share capital 750,000
Share premium 2,030,000
Retained earnings unappropriated 900,000
Retained earnings restricted for note payable 160,000
Earnings from long-term contracts 6,680,000
Costs and expenses 5,180,000

All receivables on long-term contracts are considered to be collectible within 12 months. During
the year, estimated tax payments of ₱450,000 were charged to prepaid taxes. The entity has not
recorded income tax expense. The tax rate is 30%.

At year-end, what amount should be reported as

1. Total retained earnings?

a. 1,950,000
b. 2,110,000
c. 2,400,000
d. 2,560,000

2. Total noncurrent liabilities?

a. 1,620,000
b. 1,780,000
c. 2,320,000
d. 2,480,000

3. Total current assets?

a. 5,000,000
b. 4,100,000
c. 5,700,000
d. 6,150,000

4. Total shareholders’ equity?

a. 2,940,000
b. 2,780,000
c. 4,890,000
d. 4,730,000

Solutions:

Question 1

Earnings from long-term contracts 6,680,0

00
Cost and expenses (5,180,00
0)
Income before income tax 1,500,0
00
Income tax expense ( 30% * 1,500,000 ) (450,00
0)
Net income 1,050,0
00
Retained earnings unappropriated 900,0
00
Retained earnings restricted 160,0
00
Total retained earnings 2,110,0
00

Question 2

Note payable-noncurrent 1,620,000

The billings in excess of cost on long term contracts account is a current liability.
Question 3

Cash 600,000
Accounts receivable 3,500,000
Cost in excess of billings on long term contracts 1,600,000
Total current assets 5,700,000

The prepaid taxes of ₱450,000 represent the actual income tax expense for the current year.
Thus, there is no prepayment.

Question 4

Share capital 750,000

Share premium 2,030,000
Retained earnings 2,110,000
Total shareholders’ equity 4,890,000
]
Problem 2-5 (AICPA Adapted)

Shaw Company provided the following trial balance on December 31, 2019 which had been
adjusted except for income tax expense:

Cash 600,000
Accounts receivable 2,800,000
Inventory 2,000,000
Property, plant and equipment (net) 10,500,000
Accounts payable and accrued liabilities 1,800,000
Income tax payable 1,500,000
Deferred tax liability 700,000
Share capital 2,500,000
Share premium 3,000,000
Retained earnings, January 1 3,500,000
Net sales and other revenue 15,000,000
Costs and expenses 10,000,000
Income tax expense 2,100,000
28,000,000 28,000,000

The accounts receivable included ₱1,000,000 due from a customer and payable in quarterly
installments of ₱125,000. The last payment is due December 30, 2021.

During the year, estimated tax payment of ₱600,000 was charged to income tax expense. The
income tax rate is 30%.

On December 31, 2019, what amount should be reported as

1. Total current assets?

a. 3,400,000
b. 4,400,000
c. 5,400,000
d. 4,900,000

2. Total current liabilities?

a. 2,700,000
b. 3,300,000

c. 4,050,000
d. 3,450,000

3. Retained earnings?

a. 8,500,000
b. 6,400,000
c. 7,000,000
d. 3,500,000

Solutions:

Question 1

Cash 600,000
Accounts receivable 2,300,000
Inventory 2,000,000
Total current assets 5,700,000

Accounts receivable 2,800,000

Noncurrent portion ( 125,000 * 4 ) ( 500,000)
Adjusted current portion 2,300,000

Question 2

Accounts payable and accrued liabilities 1,800,000

Income tax payable ( 1,500,000 – 600,000) 900,00
0
Total current liabilities 2,700,000
Entries made
Income tax expense 600,000
Cash 600,000

Income tax expense 1,500,000

Income tax payable 1,500,000

Adjusting entry
 Income tax payable 600,000
Income tax expense 600,000

Question 3

Net sales and other revenue 15,000,00

0
Cost and expenses (10,000,000
)
Income before income tax 5,000,00
0
Income tax expense ( 30% * 5,000,000 ) (1,500,00
0)
Net income 3,500,00
0
Retained earnings – January 1 3,500,00
0
Retained earnings- December 31 7,000,00
0
Irish Joy D. Bituin

PROBLEM 2-6 (AICPA Adapted)

Cara Company provided the following information for the current year:
January 1 December 31
Current Assets 700,000 ?
Property, plant, and equipment 3,000,000 4,000,000
Current liabilities ? 300,000
Noncurrent 1,000,000 ?

Working capital P600,000 remained unchanged.

Net income for the current year was P400,000

No dividends were declared during the year and there were no other changes in shareholder's
equity.

1. What is the amount of current assets on December 31?

a 900,000
b 300,000
c 600,000
d 450,000

2. What is the shareholder’s equity on December 31?

a 3,000,00
b 2,600,000
c 2,700,000
d 3,700,000

3. What is the amount of noncurrent liabilities on December 31?

a. 2,200,00
b. 1,100,000
c. 1,600,000
d. 1,900,000

Solution:

Question 1
Current assets - December 31 (SQUEEZE) 900,000
Current liabilities - December 31 300,000
Working capital - December 31 600,000

Question 2
Current assets - January 1 700,000
Property, plant, and equipment - January 1 3,000,000
Total assets - January 1 3,700,000
Current liabilities (300,000)
Noncurrent liabilities (1,000,00)
Shareholder's equity - January 1 2,600,000
Net income for current year 400,000
Shareholders' equity - December 31 3,000,000
Current assets - January 1 700,000
Current liabilities - January 1 (SQUEEZE) 100,000
Working capital - January 1 600,000

Question 3

Current assets - December 31 900,000

Property, plant, and equipment - December 31 4,000,000
Total Assets - December 31 4,900,000
Current liabilities - December 31 (300,000)
Noncurrent liabilities - December 31 (SQUEEZE) (1,600,00)
Shareholders' equity - December 31 3,000,000
PROBLEM 2-7 (IAA) 

Goodrich Company provided the following information on December 31, 2019:

Accounts payable 6,500,000
Bank note payable - 10% 3,000,000
Bank note payable - 11% 5,000,000
Mortgage note payable - 10% 2,000,000
Bonds payable 4,000,000
●

● The P3,000,000, 10% note was issued March 1, 2019, payable on demand. Interest is payable
every six months.

● The one-year P5,000,000, 11% note was issued January 15, 2019.

On December 31, 2019, the entity negotiated a written agreement with the bank to replace
the note with a 2-year, P5,000,000, 10% note to be issued January 15, 2020.

● The 10% mortgage note was issued October 1, 2016, with a term of 10 years. Terms of the
note give the holder the right to demand immediate payment if the entity fails to make a
monthly interest payment within 10 days from the date the payment is due.

On December 31, 2019, the entity used three months behind in making the required interest
payment.

● The bonds payable are ten-year, 8% bonds, issued June 30,2010. Interest is payable
semiannually on June 30 and December 31.

1. What amount should be reported as total current liabilities?

a 15,650,000
b 11,650,000
c 20,650,000
d 13,650,000

2. What amount should be reported as total noncurrent liabilities?

a. 8,000,000
b. 7,000,000
c. 5,000,000
d. 0
Solution:

Question 1

Accounts payable 6,500,000

Bank note payable – 10% 3,000,000
Accrued interest payable 150,000
Mortgage note payable 2,000,000
Bonds payable – due June 30, 2020 4,000,000
Total current liabilities 15,600,000

The mortgage note payable becomes payable on demand because of failure to make the required
interest payment for three months.
The bonds mature on June 30, 2020 which is within one year from the end of reporting period.
Since the 10% bank note payable was issued on March 1, 2019 with interest payable
semiannually, the interest payment dates are March 1 and September 1.
Interest accrued on the 10% bank note payable
from September 1 to December 31, 2019
(3,000,000 x 10% x 4/12) 100,000
Interest accrued on the mortgage note payable
(2,000,000 x 10% x 3/12) 50,000
Accrued interest payable – December 31, 2019 150,000

There is no accrued interest on the bonds payable because the interest is payable June 30 and
December 31.

Question 2
Bank note payable – 11% 5,000,000

The 11% bank note payable is classified as

noncurrent because it was refinanced on a long-
term basis on December 31, 2019.
PROBLEM 2-8 (IAA) 

Aroma Company provided the following information on December 31, 2019:

Cash 300,000
Accounts receivable 800,000
Inventory 1,650,000
Prepaid expenses 250,000
Property, plant, and equipment 8,800,000
Accumulated depreciation 800,000
Accounts payable 1,250,000
Accrued expenses 250,000
Bonds payable 4,000,000
Share capital 5,000,000
Retained earnings 500,000

A P500,000 note payable to bank, due on June 30, 2020, was deducted from the balance on
deposit in the same bank.

The entity recorded checks of P200,000 in payment of accounts payable on December 31, 2019.
These checks were still on hand on January 20, 2020.

An advance payment P100,000 from a customer for goods to be delivered in 2020 was deducted
from accounts receivable.

1. What total amount should be reported as current assets on December 31, 2019?
a 3,800,000
b 3,600,000
c 3,700,000
d 3,900,000

2. What total amount should be reported as current liabilities on December 31, 2019?
a 2,100,000
b 2,300,000
c 1,900,000
d 2,200,000
Solutions:

Question 1
Cash 1,000,000
Accounts receivable 900,000
Inventory 1,650,000
Prepaid expenses 250,000
Total current assets 3,800,000
Cash 300,000
Note payable deducted from cash in bank 500,000
Undelivered checks 200,000
Adjusted cash balance 1,000,000

The note payable due June 30, 2020 should be known as current liability.
The undelivered checks should be adjusted by debiting cash and crediting accounts payable

Accounts receivable 800,000

Advance payment from erroneously deducted
from accounts receivable 100,000
Adjusted carrying amount 900,000

Accounts Receivable 100,000

Advances from customer 100,000

The cash advance from the customer is shown as current liability.

Question 2

Accounts payable 1,450,000

Accrued expenses 250,000
Note payable-bank 500,000
Advances from customers 100,000
Total current liabilities 2,300,000
Accounts payable 1,250,000
Undelivered checks 200,000
Adjusted balance 1,450,000
PROBLEM 2-9 (AICPA Adapted)

Daet Company provided the following accounts balances and related information at year-end:

Cash 3,700,000
Accounts receivable 1,500,000
Allowance for doubtful accounts 200,000
Inventory 2,000,000
Prepaid Insurance 300,000
Total current assets 7,700,000

Analysis of cash

Cash in bank 1,300,000

Bank overdraft in another bank (300,000)
Cash set aside for plant addition 2,000,000
Petty cash fund 10,000
Cash withheld from wages 190,000
General cash 500,000
Total cash 3,700,000

The accounts receivable included past due account in the amount of P100,000. The account is
deemed uncollectible and should be written off.

The inventory included goods held on consignment amounting to P150,000 and goods of P200,000
purchased and received at year-end.

Neither of these items have been recorded as a purchase.

The prepaid insurance included cash surrender value of life insurance of P50,000.

1. What is the adjusted cash balance?

a 2,000,000
b 1,700,000
c 4,000,000
d 2,300,000

2. What is the adjusted balance of accounts receivable?

a. 1,200,000
b. 1,400,000
c. 1,300,000
d. 1,500,000
3. What is the adjusted inventory?
a 2,200,000
b 2,000,000
c 1,850,000
d 1,600,000

4. What total amount should be reported as current assets at year-end?

a 5,400,000
b 5,100,000
c 5,300,000
d 5,200,000

Solutions:

Question 1
Cash in bank 1,300,000
Petty cash fund 10,000
Cash withheld from wages 190,000
General cash 500,000
Total cash 2,000,000

The bank overdraft is not "netted" but reported as current liability.

The cash set aside from plant addition is shown as noncurrent asset,

Question 2

Accounts receivable 1,500,000

Account to be written off (100,000)
Adjusted balance 1,400,000

Question 3
Inventory 2,000,000
Goods held on consignment (150,000)
Adjusted balance 1,850,000

The goods of P200,000 purchased and received are properly included inventory.
Question 4
Cash 2,000,000
Accounts receivable 1,400,000
Allowance for doubtful accounts (100,000)
Inventory 1,850,000
Prepaid insurance (300,000 - 50,000) 250,000
Total current assets 5,400,000

The cash surrender value is shown as noncurrent asset.

PROBLEM 2-10 (PHILCPA Adapted)

Icarus Company provided the following data at year-end:

Cash 2,000,000
Accounts receivable 3,000,000
Inventory 1,900,000
Prepaid expenses 100,000
Accounts payable 2,500,000
Interest payable 150,000
Income tax payable 300,000
Money claim of the union pending final decision 500,000
Mortgage payable, due in four annual installments 2,000,000

Analysis of cash

Cash in bank 1,650,000

Customer check marked NSF 100,000
Employee IOU 50,000
Deposit with court for case under litigation 200,000
Total cash 2,000,000

Analysis of accounts receivable

Customers' debit balances 1,600,000

Advances to subsidiary 400,000
Advances to suppliers 200,000
Advances to officers due currently 300,000
Allowance for doubtful accounts (100,000)
Selling price of merchandise invoiced at 120%
of cost undelivered and excluded from inventory 600,000
Total accounts receivable 3,000,000

1. What amount should be reported as total current assets?

a 6,600,000
b 6,300,000
c 6,800,000
d 6,400,000
2. What amount should be reported as total current liabilities?
a 3,450,000
b 3,400,000
c 3,950,000
d 3,700,000

Solutions:

Question 1
Cash in bank 1,650,000
Accounts receivable 1,700,000
Allowance for doubtful accounts (100,000)
Allowance to employee – IOU 50,000
Advances to officers currently due 300,000
Advances to suppliers 200,000
Inventory 2,400,000
Prepaid expenses 100,000
Total current assets 6,300,000
Accounts receivable 1,600,000
Customer check marked NSF 100,000
Adjusted balance 1,700,000

The customer check marked NSF should be reverted to accounts receivable.

The cash deposit with court is classified as noncurrent.

Inventory 1,900,000
Cost undelivered inventory (600,000/120) 500,000
Adjusted balance 2,400,000

The selling price of undelivered inventory is excluded from accounts receivable, but the cost
should be included in inventory.

Question 2
Accounts payable 2,500,000
Interest payable 150,000
Income tax payable 300,000
Mortgage payable - current portion (2,000,000/4) 500,000
Total current liabilities 3,450,000
The money claim of the union pending the final decision should be disclosed as contingent
liability.