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Chapter 4 STATEMENT OF COMPREHENSIVE INCOME Cost of goods sold and operating expensesProblem 4-1 (AICPA Adapted)Brock Company reported operating expenses in two categories, namely distribution and general and administrative.The adjusted trial balance at year-end included the following expense and lo...

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Chapter 4 STATEMENT OF COMPREHENSIVE INCOME Cost of goods sold and operating expenses Problem 4-1 (AICPA Adapted) Brock Company reported operating expenses in two categories, namely distribution and general and administrative. The adjusted trial balance at year-end included the following expense and loss accounts for current year: Accounting and legal fees Advertising Freight out Interest Loss on sale of long-term investment Officers’ salaries Rent for office space Sales salaries and commissions

1,200,000 1,500,000 800,000 700,000 300,000 2,250,000 2,200,000 1,400,000

One-half of the rented premises is occupied by the sales department. What amount should be reported as total distribution costs? a. b. c. d.

4,800,000 4,000,000 3,700,000 3,600,000

Solution 4-1 Answer a Advertising Freight out Rent (2,200,000 x 1/2) Sales salaries and commissions Total distribution costs

1,500,000 800,000 1,100,000 1,400,000 4,800,000

Problem 4-2 (AICPA Adapted) Lee Company reported the following data for the current year: Legal and audit fees 1,700,000 Rent for office space 2,400,000 Interest on inventory loan 2,100,000 Loss on abandoned data processing equipment 350,000 Freight in 1,750,000 Freight out 1,600,000 Officers’ salaries 1,500,000 Insurance 850,000 Sales representative salaries 2,150,000 Research and development expense 1,000,000 The office space is used equally by the sales and accounting departments. What amount should be classified as general and administrative expenses? a. b. c. d.

5,250,000 6,450,000 5,600,000 6,250,000

Solution 4-2 Answer a Legal and audit fees Rent for office space (2,400,000 x 1/2) Officers’ salaries Insurance Total general and administrative expenses

1,700,000 1,200,000 1,500,000 850,000 5,250,000

Problem 4-3 (AICPA Adapted) Vigor Company provided the following information for the current year: Net accounts receivable at January 1 Net accounts receivable at December 31 Account receivable turnover Inventory at January 1 Inventory at December 31 Inventory turnover What is the gross margin for the current year? a. 150,000 b. 200,000

900,000 1,000,000 5 to 1 1,100,000 1,200,000 4 to 1

c. 300,000 d. 400,000

Solution 4-3 Answer a Net Sales

=Average accounts receivable x accounts receivable turnover =950,000 x 5 =4,750,000

Cost of sales =Average inventory x iventory turnover = 1,150,000 x 4 =4,600,000 Gross margin = 4,750,000 – 4,600,000 =150,000

Problem 4-4 (PHILCPA Adapted) Hiligaynon Company provided the following information for the current year: Beginning inventory Freight in Purchase returns Ending inventory Selling expenses Sales discount

400,000 300,000 900,000 500,000 1,250,000 250,000

The cost of goods sold is six times the selling expenses. What is the amount of gross purchases? a. b. c. d.

6,500,000 6,700,000 8,000,000 8,200,000

Solution 4-4 Answer d Beginning inventory Gross purchases (SQUEEZE) Freight in Purchase returns Goods available for sale Ending inventory

400,000 8,200,000 300,000 (900,000) 8,000,000 (500,000)

Cost of goods sold (1,250,000 x 6)

7,500,000

Problem 4-5 (PHILCPA Adapted) Bicolano Company provided the following data for the current year: Inventory, January 1 Purchases Purchase returns and allowances Sales returns and allowances Inventory on December 31 Gross profit rate on net sales

2,000,000 7,500,000 500,000 750,000 2,800,000 20%

What is the amount of gross sales for the current year? a. b. c. d.

7,750,000 8,500,000 7,000,000 9,125,000

Solution 4-5 Answer b Inventory – January 1 Purchases Purchase returns and allowances Goods available for sale Inventory - December 31 Cost of goods sold

2,000,000 7,500,000 ( 500,000) 9,000,000 (2,800,000) 6,200,000

Net sales (6,200,000 / 80%) Sales returns and allowances Gross Sales

7,750,000 750,000 8,500,000

Problem 4-7 (AICPA Adapted) Carmela Company provided the following information for the current year: Net Sales Ending inventory Gross margin on sales What is the cost of goods available for sale? a. 1,200,000 b. 1,220,000 c. 1,080,000

1,800,000 120,000 40%

d.

960,000

Solution 4-6 Answer a (1,800,000 x 60% = 1,080,000 + 120,000)

1,200,000

Problem 4-7 (AICPA Adapted)  Kay Company provided the following information for the current year: Increase in raw materials inventory Decrease in goods in process inventory Decrease in finished goods inventory Raw materials purchased Direct labor payroll Factory overhead Freight out Freight in

150,000 200,000 350,000 4,300,000 2,000,000 3,000,000 450,000 250,000

What is the cost of goods sold for he current year? a. b. c. d.

9,950,000 9,550,000 9,250,000 9,150,000

Solution 4-7 Answer a Raw materials purchased Freight in Increase in raw materials Raw materials used Direct labor Factory overhead Total manufacturing cost Decrease in goods in process Cost of goods manufactured Decrease in finished goods Cost of goods sold

4,300,000 250,000 (150,000) 4,400,000 2,000,000 3,000,000 9,400,000 200,000 9,600,000 350,000 9,950,000

 Problem 4-8 (IAA) Sheraton Company reported the following information for the current year. Ending goods in process Depreciation on factory building Beginning raw materials Direct labor Factory supervisor's salary Depreciation on headquarters building Beginning goods in process Ending raw materials Indirect labor Purchases of raw materials

1,000,000 320,000 400,000 1,980,000 560,000 210,000 760,000 340,000 360,000 2,300,000

What is the cost of goods manufactured for the current year? a. 5,340,000 b. 5,580,000 c. 5,550,000 d. 5,820,000 Solution 4-8 Answer a Beginning raw materials Purchases of raw materials Raw materials available for use Ending raw materials Raw materials used Direct labor Factory overhead: Depreciation on factory building Factory supervisor's salary Indirect labor Total manufacturing cost Beginning goods in process Total goods in process Ending goods in process Cost of goods manufactured

400,000 2,300,000 2,700,000 ( 340,000) 2,360,000 1.980,000 320,000 560,000 360,000 1,240,000 5,580,000 760,000 6,340,000 (1 ,000,000) 5,340,000

 Problem 4-9 (PHILCPA Adapted) Argentina Company incurred the following costs and expenses during the current year: Raw material purchases Direct labor Indirect labor — factory Factory repairs and maintenance Taxes on factory building Depreciation — factory building Taxes on salesroom and general office Depreciation — sales equipment Advertising Sales salaries Office salaries Utilities — 60% applicable to factory

Raw materials Work in process Finished goods

4,000,000 1,500,000 800,000 200,000 100,000 300,000 150,000 50,000 400,000 500,000 700,000 500,000

Beginning 300,000 400,000 500,000

Ending 450,000 350,000 700,000

1. What is the cost of raw materials used? a. 3,850,000 b. 4,000,000 c. 4,150,000 d. 4,750,000 2. What is the cost of goods manufactured for the current year? a. 7,450,000 b. 7,200,000 c. 7,100,000 d. 7,300,000

3. What is the cost of goods sold for the current year? a. 7,300,000 b. 6,900,000 c. 7,600,000 d. 8,300,000 Solution 4-9 Question I Answer a Beginning raw materials Raw material purchases Raw materials available for use Ending raw materials Raw materials used

300,000 4,000,000 4,300,000 ( 450,000) 3,850,000

Question 2 Answer c Raw materials used Direct labor Factory overhead: Indirect labor Factory repairs and maintenance Taxes on factory building Depreciation — factory building Utilities (60% x 500,000)

3,850,000 1,500,000

800,000 200,000 100,000 300,000 300,000

1,700,000

Total manufacturing cost Beginning work in process Ending work in process Cost of goods manufactured

7,050,000 400,000 ( 350,000) 7,100,000

Question 3 Answer b Beginning finished goods Cost of goods manufactured Goods available for sale Ending finished goods Cost of goods sold

500,000 7,100,000 7,600,000 ( 700,000) 6,900,000

 Problem 4-10 (PHILCPA Adapted) Mercury Company showed cost of goods sold of P4,320,000 in the statement of comprehensive income after the first year of operations. The total manufacturing cost comprised the following: Materials used Direct labor Incurred Manufacturing overhead

50% 30% 20%

Goods in process at year-end amounted to 10% of the total manufacturing cost.

Finished goods at year-end amounted to 20% of the cost of goods manufactured. What is the amount of the direct labor cost incurred? a. 1,800,000 b. 2,400,000 c. 3,000,000 d. 5,400,000 Solution 4-10 Answer a Total manufacturing cost Less: Goods in process — 12/31 Cost of goods manufactured Less: Finished goods — 12/31 (20% x 90%) Cost of goods sold 72% Total manufacturing cost (4,320,000 / 72%) Direct labor cost (30% x 6,000,000) Problem 4-11 (IAA)

100% 10% 90% 18%

6,000,000 600,000 5,400,000 1,080,000 4,320,000 6,000,000 1,800,000

Tactful Company reported that the operating expenses other than interest expense for the year amount to 40% of cost of goods sold but only 20% of sales. Interest expense is 5% of sales. The amount of purchases is 120% of cost of goods sold. Ending inventory is twice as much as the beginning inventory. The net income for the year P560,000. The income tax rate is 30%. What is the amount of sales for the year? a. 2,080,000 b. 1,485,000 c. 2,285,000 d. 3,200,000 Solution 4-11 Answer d Income before income tax (560,000 / 70%) Sales (800,000 / 25%) Sales Cost of goods sold (20% / 40%) Operating expenses Interest expense Income before income tax

800,000 3,200,000 100% ( 50%) ( 20%) ( 5%) 25%

Problem 4-12 (PHILCPA Adapted) Jericho Company showed net income of P480,000 for the year. Selling expenses were equal to 15% of sales and also 25% of cost of goods so All other expenses were 13% of sales.

What is the gross profit for the year? a. 4,000,000 b. 2,400,000 c. 1,600,000 d. 2,000,000 Solution 4-12 Answer c Sales Cost of goods sold ( 15% / 25%) Selling expenses Other expenses Net income

100% (60%) (15%) (13%) 12%

Sales ( 480,000 / 12%) Cost of goods sold (60% x 4,000,000) Gross profit

4,000,000 2,400,000 1,600,000

Problem 4-13 (PHILCPA Adapted) Ronalyn Company reported that the financial records were destroyed by fire at the end of the current year. However, certain statistical data related to the income statement are available. Interest expense Cost of goods sold Sales discount

20,000 2,000,000 100,000

The beginning inventory was P400,000 and decreased 20% during the year. Administrative expenses are 25% of cost of goods sold but only 10% of gross sales. Four-fifths of the operating expenses relate to sale activities. 1. What is the amount of gross sales? a. 5,000,000 b. 7,000,000 c. 3,000,000 d. 4,000,000 2. What is the total amount of operating expenses? a. 2,000,000

b. 2,500,000 c. 1,500,000 d. 2,520,000 3. What is the income before tax for the current year? a. 380,000 b. 480,000 c. 330,000 d. 400,000 Solution 4-13 Question 1 Answer a Cost of goods sold (10% / 25%) Cost of goods sold Divide by cost ratio Gross sales

40% 2,000,000 40% 5,000,000

Question 2 Answer b Administrative expenses (10% x 5,000,000) Operating expenses ( 500,000 / 1/5) Administrative expenses Distribution costs

500,000 2,500,000 ( 500,000) 2,000,000

Question 3 Answer a Sales Sales discount Net sales Cost of goods sold Gross profit Administrative expenses Distribution costs Interest expense Income before income tax

5,000,000 ( 100,000) 4,900,000 (2,000,000) 2,900,000 ( 500,000) (2,000,000) ( 20,000 ) 380,000

An entity reported the following unadjusted current assets and shareholders’ equity at year end:

Cash

360,000

Financial assets at fair value, including cost of P180,000 of entity’s own share Trade accounts receivable Inventory Share capital Share premium Retained earnings

600,000 2,100,000 900,000 3,000,000 1,200,000 300,000

What amount should be reported as total shareholders’ equity at year-end?

4,320,000

4,500,000

3,120,000

4,680,000

Question 2 2 / 2 pts An entity showed cost of goods sold of P1,440,000 in its statement of comprehensive income after the first year of operations. The total manufacturing cost comprised 50% materials used, 30% direct labor incurred and 20% manufacturing overhead. Goods in process at year-end totaled 10% of the total manufacturing cost. Finished goods at year-end amounted to 20% of the cost of goods manufactured.

What is the manufacturing overhead cost incurred?

600,000

1,200,000

1,800,000

400,000

Question 3 2 / 2 pts An entity reported the following information for the current year:

Inventory, January 1 Purchases Inventory, December 31

1,000,000 3,700,000 1,400,000

Freight in Sales returns and allowances Purchase discounts

300,000 375,000 250,000

Gross profit rate on net sales

What is the amount of gross sales for the current year?

3,875,000

20%

4,562,500

4,250,000

3,500,000

IncorrectQuestion 4 0 / 2 pts An entity provided the following information for the current year:

Net sales

1,260,000

Freight in

31,500

Purchase discounts Ending inventory Gross margin on sales

What is the cost of goods available for sale?

854,000

756,000

672,000

17,500 84,000 40%

840,000

Question 5 2 / 2 pts Rolex Company reported operating expenses as distribution and general or administrative. The adjusted trial balance at the end of the current year included the following expense accounts:

Accounting and legal fees Advertising

400,000 500,000

Interest

200,000

Freight in

250,000

Store supplies used Loss on sale of equipment

300,000 100,000

Insurance expense

500,000

Officers’ salaries

750,000

Rent for office space Sales salaries and commissions

600,000 800,000

Portion of insurance expense is allocated 40% to sales department. What total amount should be included in distribution expenses for the current year?

2,100,000

2,350,000

2,050,000

1,800,000

IncorrectQuestion 6 0 / 2 pts Rolex Company reported operating expenses as distribution and general or administrative. The adjusted trial balance at the end of the current year included the following expense accounts:

Accounting and legal fees Advertising

400,000 500,000

Interest

200,000

Freight in

250,000

Store supplies used

300,000

Loss on sale of equipment

100,000

Insurance expense

500,000

Officers’ salaries

750,000

Rent for office space

600,000

Sales salaries and commissions

800,000

Portion of insurance expense is allocated 40% to sales department. What total amount should be included in administrative expenses?

2,050,000

2,350,000

2,550,000

2,250,000

IncorrectQuestion 7 0 / 2 pts An entity provided the following information for the current year:

Increase in raw materials inventory Increase in goods in process inventory

150,000 200,000

Decrease in finished goods inventory

350,000

Raw materials purchased

4,300,000

Direct labor payroll

2,000,000

Factory overhead

3,000,000

Freight out

450,000

Freight in

250,000

What is the cost of goods sold for the current year?

9,550,000

9,950,000

9,250,000

9,150,000

IncorrectQuestion 8

0 / 2 pts An entity reported the following information for the current year:

Ending goods in process Depreciation on factory building Sales salaries Beginning raw materials Direct labor Factory supervisor’s salary Depreciation on headquarters building Beginning goods in process Ending raw materials

500,000 160,000 135,000 200,000 990,000 280,000 105,000 380,000 170,000

Indirect labor

180,000

Advertising

250,000

Purchase of raw materials

1,150,000

What is the cost of goods manufactured for the current year?

2,230,000

2,390,000

2,670,000

2,775,000

IncorrectQuestion 9 0 / 2 pts An entity provided the following data for the current year:

Sales

4,800,000

Share of profit of associate Decrease in inventory of finished goods Raw materials and consumable used Employee benefit expense

225,000 150,000 1,750,000 800,000

Gain attributable to credit risk of a financial liability designated at FVPL

200,000

Impairment loss

400,000

Finance cost

180,000

Other operating expenses Income tax expense

450,000 450,000

Unrealized gain on interest rate swap designated as a cash flow hedge

What is the net income for the current year?

695,000

845,000

995,000

100,000

1,145,000

Question 10 2 / 2 pts An entity provided the following information for the current year:

Income from continuing operations Income from discontinued operation Unrealized loss on financial asset – FVPL

2,400,000 300,000 480,000

Unrealized loss on equity investment – FVOCI

600,000

Unrealized gain on debt investment – FVOCI

720,000

Unrealized gain on futures contract designated as a 240,000

fair value hedge Translation gain on foreign operation Net remeasurement loss on foreign operation Loss on credit risk of a financial liability at FVPL Revaluation surplus during the year

120,000 360,000 180,000 1,500,000

What amount should be reported as net income for the current year?

2,700,000

2,220,000

2,460,000

2,400,000...