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Chapter 2 Statement of Financial Position Problem Dilemma Company provided the following information on December 31, 2019: Cash Accounts receivable Allowance for doubtful accounts Prepaid expenses Inventory Financial asset at fair value Land Building in process Patent Machinery and equipment Accumul...

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Chapter 2 Statement of Financial Position

Problem 2-1 Dilemma Company provided the following information on December 31, 2019: Cash Accounts receivable Allowance for doubtful accounts Prepaid expenses Inventory Financial asset at fair value Land Building in process Patent Machinery and equipment Accumulated depreciation Discount on bonds payable Accounts payable Accrued expenses Note payable due July 1, 2021 Bonds payable Share capital Retained earnings Retained earnings appropriated for contingencies    

800,000 750,000 50,000 160,000 1,000,000 690,000 500,000 5,000,000 200,000 1,500,000 300,000 200,000 900,000 150,000 250,000 2,000,000 3,000,000 4,000,000 150,000

The financial assets at fair value include Dilemma Company shares acquired at cost of P250,000. The bonds pay 10% interest semiannually on April 1 and October 1 and mature on April 1, 2022. No interest has been accrued on the bonds Forty thousand shares, P100 par, are authorized, of which 30,000 shares are issued including 2,000 shares in the treasury The retained earnings appropriated balance of P150,000 was created in anticipation for the result of a pending lawsuit Shortly after the end of reporting period, the suit was amicably settled and the entity paid P100,000

Required: Prepare statement of financial position

Answer:

Dilemma Company Statement of Financial Position December 31, 2019 ASSETS Current assets: Cash Financial asset at fair value Trade and other receivables Inventory Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Intangible asset Total noncurrent assets Total assets

Note

(1)

800,000 440,000 700,000 1,000,000 160,000 3,100,000

(2) (3)

6,700,000 200,000 6,900,000 10,000,000

EQUITY AND LIABILITIES Current liabilities: Trade and other payables Noncurrent liabilities: Bonds payable Note payable to bank, due July 1, 2021 Total noncurrent liabilities

(4) (5)

1,200,000 1,800,000 250,000

Shareholders’ equity: Share capital, P100 par, 40,000 shares authorized 30,000 shares issued 3,000,000 Reserves (6) 250,000 Retained earnings (7) 3,750,000 Treasury shares, at cost, 2,000 shares ( 250,000) Total shareholders’ equity Total liabilities and shareholders’ equity

Note 1 - Trade and other receivables

2,050,000

6,750,000 10,000,000

Accounts receivable Allowance for doubtful accounts Total

750,000 ( 50,000) 700,000

Note 2 - Property, plant and equipment Cost Land Building in process Machinery and equipment Total

500,000 5,000,000 1,500,000 7,000,000

Accum. depr. Book value 300,000 300,000

500,000 5,000,000 1,200,000 6,700,000

Note 3 - Intangible asset Patent

200,000

Note 4 - Trade and other payables Accounts payable Accrued expenses Accrued interest on bonds payable (2,000,000 x 10% x 3/12) Liability for loss on lawsuit Total

900,000 150,000 50,000 100,000 1,200,000

Note 5 - Bonds payable Bonds payable Discount on bonds payable

2,000,000 ( 200,000) 1,800,000

Note 6 - Reserves Retained earnings appropriated for treasury shares

Note 7 - Retained earnings

250,000

Unadjusted balance Add: Cancelation of appropriation for contingencies Total Less: Interest accrued on bonds payable Appropriated for treasury stock Actual loss on lawsuit Unappropriated retained earnings

4,000,000 150,000 4,150,000 50,000 250,000 100,000

400,000 3,750,000

Problem 2-2 Socorro Company provided the following information on December 31, 2019: Current assets Other assets

3,100,000 5,900,000

Current liabilities 1,000,000 long term liabilities 1,000,000 Capital 7,000,000

Cash (including P200,000 invested in money market and Restricted foreign deposit of P300,000) Land held for undetermined use Accounts receivable less allowance of P50,000 Inventories Socorro Corporation share capital, at cost

1,000,000 500,000 700,000 600,000 300,000

Total current assets

3,100,000

Store supplies Building less allowance of P500,000 Equipment less allowance of P250,000 Financial asset at amortized cost Trademark Advances to officers-indefinite repayment Patent Land

50,000 3,000,000 750,000 1,000,000 300,000 150,000 250,000 400,000

Total other assets

5,900,000

Accounts payable Note payable, due December 31, 2020 Income tax payable Share premium Total current liabilities Unearned leased hold income (five years starting 2020) Stock dividend payable

500,000 100,000 150,000 250,000 1,000,000 350,000 150,000

Serial bonds payable (P100,000 maturing annually)

500,000

Total long-term liabilities

1,000,000

Retained earnings Share capital,P100 par Retained earnings appropriated for plant expansion

1,500,000 5,000,000 500,000

Total capital

7,000,000

Required: Prepare statement of financial position with supporting notes and computations. Answer: Socorro Corporation Statement of Financial Position December 31, 2019

ASSETS Current assets: Cash and cash equivalents Trade and other receivable Inventories Prepaid expenses Total current assets

Note (1) (2)

700,000 700,000 600,000 50,000 2,050,000

(3)

Noncurrent assets: Property, plant and equipment Long-term investment Investment property Intangible assets Other noncurrent assets Total noncurrent assets Total assets

(4) (5) (6) (7) (8)

4,150,000 1,000,000 500,000 550,000 450,000

EQUITY AND LIABILITIES

6,650,000 8,700,000

Current liabilities: Trade and other payables Serial bonds payable-current portion Total current liabilities

(9)

920,000

Noncurrent liabilities: Serial bonds payable-remaining portion Unearned leasehold income-remaining portion Total noncurrent liabilities Equity: Share capital Reserves Retained earnings Treasury shares, at cost Total equity Total liabilities and equity

820,000 100,000

400,000 280,000 680,000

(10) 5,150,000 (11) 1,050,000 (12) 1,200,000 ( 300,000) 7,100,000 8,700,000

Note 1 - Cash and cash equivalents Cash Money market placement Total

500,000 200,000 700,000

Note 2 - Trade and other receivable Accounts receivable Allowance for doubtful accounts Total trade and other receivable

750,000 ( 50,000) 700,000

Note 3 - Prepaid expenses Store supplies

Note 4 - Property, plant and equipment

50,000

Land Building Equipment Total

Cost 400,000 3,500,000 1,000,000 4,900,000

Accum. depr. Book value 400,000 500,000 3,000,000 250,000 750,000 750,000 4,150,000

Note 5 – Long-term investment Investment in bonds

1,000,000

Note 6 – Investment property Land for undetermined use

500,000

Note 7 - Intangible assets Trademark Patent Total

300,000 250,000 550,000

Note 8 - Other noncurrent assets Advances to officers Restricted foreign deposit Total

150,000 300,000 450,000

Note 9 - Trade and other payables Accounts payable Note payable Income tax payable Unearned leasehold income-current portion Total

500,000 100,000 150,000 70,000 820,000

Note 10 - Common stock Share capital issued Stock dividend payable Total Note 11 - Reserves

5,000,000 150,000 5,150,000

Share premium Retained earnings appropriated for plant expansion Retained earnings appropriated for treasury share Total reserves

250,000 500,000 300,000 1,050,000

Note 12 - Retained earnings Retained earnings unappropriated Appropriation for treasury share Adjusted balance

1,500,000 ( 300,000) 1,200,000

Problem 2-3 Magna Company reported the following statement of financial position on December 31,2019. Current assets Investments Tangible assets Intangible assets

2,000,000 400,000 7,150,000 400,000 9,950,000

Current liabilities Long term liabilities Equity

1,500,000 2,000,000 6,450,000 9,950,000

Equity has preference share capital, no par value, P5 stated value, authorized 300,000 shares, issued 150,000 shares for P1,000,000, and ordinary share capital, P20 par value, authorized 400,000 shares issued 100,000 shares of P30 per share.  Tangible assets include building P5,000,000 less accumulated depreciation P1,600,000, equipment P1,400,000 less accumulated depreciation P400,000, land P1,250,000, and land held for future plant site P1,500,000.  The current assets include : Cash P4,000,000, accounts receivable P750,000 less P50,000 for allowance for doubtful accounts, inventories P800,000, and prepaid expenses P100,000  The investments include the cash surrender value of a life insurance contract P50,000, investment in securities, short-term, P100,000, and long-term, P250,000  Intangible assets include a franchise P100,000, goodwill P200,000 and discount on bonds payable P100,000.  Current liabilities include accounts payable P400,000, notes payable-short-term debt P450,000, and long-term P300,000, taxes payable P150,000, and appropriation for contingencies P200,000.  Long-term liabilities comprised solely of 12% bonds payable due on December 31, 2022. Required: 

Prepare in good form a properly classified statement of financial position with appropriate notes. Answer: Magna Company Statement of Financial Position December 31, 2019 ASSETS Current assets: Cash Financial assets at fair value Trade accounts receivable Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Long-term investments Intangible assets Total noncurrent assets Total assets

note

(1)

400,000 100,000 700,000 800,000 100,000 2,100,000

(2) (3) (4)

7,150,000 300,000 300,000 7,750,000 9,850,000

EQUITY AND LIABILITIES Current liabilities Trade and other payables (5) 550,000 Note payable-short-term 450,000 Total current liabilities

1,000,000

Noncurrent liabilities: Bonds payable (6) Notes payable-long-term debt Total noncurrent liabilities

2,200,000

Equity: Share capital Reserves Retained earnings Total equity Total liabilities and equity Note 1 – trade accounts receivable

(7) (8)

1,900,000 300,000

2,750,000 1,450,000 2,450,000 6,650,000 9,850,000

Accounts receivable Allowance for doubtful accounts Net realizable value

750,000 (50,000) 700,000

Note 2 – Property, plant and equipment Land Land for future plant site Building Equipment Total

Cost 1,250,000 1,500,000 5,000,000 1,400,000 9,150,000

Accum. depr. 1,600,000 400,000 2,000,000

Carrying amount 1,250,000 1,500,000 3,400,000 1,000,000 7,150,000

Note 3 – long-term investments Investment in equity securities Cash surrender value Total

250,000 50,000 300,000

Note 4 – intangible assets Franchise Goodwill Total

100,000 200,000 300,000

Note 5 – trade and other payables Account payable Taxes payable Total

400,000 150,000 550,000

Note 6 – bonds payable Bonds payable, due December 31, 2015 Discount on bonds payable

2,000,000 (100,000) 1,900,000

Note 7 – share capital Preference share capital, P5 stated value, 300,000 shares authorized, 150,000 shares issued Ordinary share capital, P20 par value, 400,000 shares authorized, 100,000 shares issued Total Note 8 – reserves

750,000 2,000,000 2,750,000

Share premium-preference Share premium-ordinary Retained earnings appropriated for contingencies Total

250,000 1,000,000 200,000 1,450,000

Problem 2-4 Boracay Company prepared the following condensed statement of financial position of December 31, 2019. Current asset Current liabilities

4,000,000 1,500,000

Working capital Add other assets

2,500,000 1,800,000

Working capital plus other assets Deduct other liabilities

4,300,000 100,000

Net assets

4,200,000

Money market placement – three months Cash in bank Accounts receivable Notes receivable Financial assets at fair value Inventory Goodwill

500,000 700,000 800,000 200,000 400,000 1,300,000 100,000

Total current assets

4,000,000

The inventory account was found to include the cost of office supplies of P50,000 and office equipment acquired at the end of 2019 at a cost of P250,000. Other assets included land and building acquired on January 1, 2018 for P4,000,000, less mortgage of P200,000. At the time of purchase, the land was worth P1,000,000. The building on December 31, 2019 has a remaining life of 18 years. Current liabilities represented balances that were payable to trade creditors. Other liabilities consisted of withholding tax payable. However, no recognition was given to accrued salaries of P250,000. The entity was originally organized in 2018 when 30,000 ordinary shares with par value of P100 were issued in exchange for assets with fair value of P3,200,000.

Required: Prepare a statement of financial position Answer: Boracay Company Statement of Financial Position December 31, 2019 ASSETS Current assets: Cash and cash equivalents Financial assets at fair value Trade receivables Inventory (1,300,000 -50,000 -250,000) Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Goodwill Total noncurrent assets Total assets

Note (1) 1,200,000 400,000 (2) 1,000,000

(3)

1,000,000 50,000 3,650,000

(4)

3,950,000 100,000 4,050,000 7,700,000

EQUITY AND LIABILITIES Current liabilities: Trade and other payables

(5)

2,050,000

Noncurrent liability: Mortgage payable Equity: Ordinary share capital, P100 par Share premium Retained earnings Total equity Total liabilities and equity

Note 1 – cash and cash equivalent

2,000,000

(6)

3,000,000 200,000 450,000 3,650,000 7,700,000

Cash in bank Money market placement Total

700,000 500,000 1,200,000

Note 2 – trade receivables Accounts receivable Notes receivable Total

800,000 200,000 1,000,000

Note 3 – prepaid expenses Office supplies

50,000

Note 4 – property, plant and equipment Land Building Office equipment Total

Cost 1,000,000 3,000,000 250,000 4,250,000

Accum. depr. 300,000 300,000

Carrying amount 1,000,000 2,700,000 250,000 3,950,000

Note 5 – trade accounts and other payables Accounts payable Withholding tax payable Accrued salaries payable Accrued interest payable Total

1,500,000 100,000 250,000 200,000 2,050,000

Note 6 – retained earnings Net assets per book Contributed capital Unadjusted retained earnings Unrecorded expenses: Salaries Depreciation on building (3,000,000/20x2)

4,200,000 3,200,000 1,000,000 250,000 300,000

550,000 450,000

Problem 2- 5 Dakak Company provided the following statement of financial position on December 31, 2019:

Current assets Other assets

2,700,000 6,000,000

Current liabilities Other liabilities Equity

9,300,000 

Analysis of current assets disclose the following: Cash and cash equivalents Financial assets held for trading Accounts receivable Inventories



350,000 6,600,000

100,000 400,000 200,000 1,000,000 800,000 2,500,000

Other liabilities include: Bonds payable in annual installment of P500,000



4,000,000 2,250,000

Current liabilities include: Accrued expenses Customers deposit Advances from officer, not payable currently Accounts payable Note payable-bank due December 31,2021



500,000 600,000 750,000 850,000 2,700,000

Other assets include: Property, plant and equipment, cost P6,000,000 Advances to subsidiary Goodwill recorded on the books to cancel losses Incurred by the entity in prior years



2,500,000 2,000,000 4,800,000 9,300,000

2,000,000

Share capital, 50,000 shares, P100 par, was originally issued and credited for a total consideration of P5,500,000 but losses of the entity for past years were charged against the share capital balance.

Required: Prepare a properly classified statement of financial position.

Answer: Dakak Company Statement of Financial Position December 31, 2019 ASSETS Current assets: Cash and cash equivalents Financial assets held for trading Accounts receivable Inventories Total current assets Noncurrent assets: Property, plant and equipment Long-term investment Total noncurrent assets Total assets

Note 500,000 600,000 750,000 850,000 2,700,000 (1) (2)

4,000,000 2,250,000 6,250,000 8,950,000

LIABILITIES AND EQUITY Current liabilities: Trade and other payables Bonds payable-current portion Total current liabilities

(3)

Noncurrent liabilities: Bonds payable-remaining portion Note payable, due December 31, 2019 Other noncurrent liability (4) Total noncurrent liabilities Equity: Share capital, P100 par, 50,000 shares Share premium Retained earnings (deficit) (5) Total equity Total liabilities and equity Note 1 – property, plant and equipment Property, plant and equipment Accumulated depreciation Carrying amount

1,500,000 500,000 2,000,000 150,000 800,000 200,000 2,500,000 5,000,000 500,000 (1,050,000) 4,450,000 8,950,000

6,000,000 (2,000,000) 4,000,000

Note 2 – long term investment Advances to subsidiary

2,250,000

Note 3 – trade and other payables Account payables Accrued expenses Customers’ deposit Total

1,000,000 100,000 400,000 1,500,000

Note 4 – other noncurrent liability Advances from officer, not repayable currently

200,000

Note 5 – retained earnings Equity per book Contributed capital Unadjusted retained earnings Writeoff of goodwill Deficit

4,800,000 5,500,000 (700,000) (350,000) (1,050,000)

Problem 2-6 Darwin Company provided the following information at year-end: Cash Accounts receivable Inventory, including inventory expected in the ordinary course of preparations to be sold beyond 12 months amounting to P700,000 Financial asset held for trading Equity investment at fair value through other Comprehensive income Equipment held for sale Deferred tax asset

1,500,000 1,200,000

1,000,000 300,000 800,000 2,000,000 150,000

What amount should be reported as total current assets at year-end? a. 6,000,000 b. 4,000,000 c. 6,800,000

d. 4,800,000 Answer: d Cash Accounts receivable Inventory, including inventory expected in the ordinary course of preparations to be sold beyond 12 months amounting to P700,000 Financial asset held for trading Equity investment at fair value through other Comprehensive income Total current asset

1,500,000 1,200,000 1,000,000 300,000 800,000 4,800,000

Problem 2-7 At year-end, the current assets of Hazel Company revealed cash and cash equivalent of P700,000, accounts receivable of P1,200,000 and inventories of P600,000. The examination of account...