Financial Accounting 1 Valix PDF

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SOLUTION MANUALFinancial AccountingValix and PeraltaVolume One - 2008 Edition1CHAPTER 1Problem 1-1 Problem 1-2 Problem 1-Problem 1-1. D 1. A 1. C 1. A2. C 2. A 2. D 2. C3. D 3. D 3. D 3. A4. D 4. B 4. A 4. A5. C 5. D 5. D 5. D6. C 6. B 6. A7. B 7. D 7. D8. C 8. C 8. B9. D 9. C 9. D10. A 10. D 10. DP...

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SOLUTION MANUAL

Financial Accounting Valix and Peralta Volume One - 2008 Edition 1 CHAPTER 1 Problem 1-1 Problem 1-4 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

D C D D C C B C D A

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Problem 1-2

A A D B D B D C C D

Problem 1-3

1. 2. 3. 4. 5.

C D D A D

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

A C A A D A D B D D

Problem 1-5 8 1. 2. 3. 4. 5. 6.

A A A D D D

Problem 1-6

1. 2. 3. 4. 5. 6.

A A C A A A

Problem 1-7

1. 2. 3. 4. 5. 6.

D D C A A C

Problem 1-

1. 2. 3. 4. 5. 6.

B B C C A B

7. B 8. D

7. B 8. C

7. D 8. D

7. D 8. D

9. C

9. A

9. B

9. A

10. D

10. B

10. D

10. B

Problem 1-9 Problem 1-12 1. 2. 3. 4. 5.

D D C B C

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Problem 1-10

A B D B A D C A D A

Problem 1-11

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

C B D A F E J G H I

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

E D B C G H I F J A

2 Problem 1-13 1. Systematic and rational allocation as a matching process 2. Comparability or consistency 3. Monetary unit 4. Income recognition principle 5. Time period 6. Going concern and cost principle 7. Accounting entity 8. Materiality 9. Completeness or standard of adequate disclosure 10. Conservatism or prudence

Problem 1-14 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Materiality Going concern Income recognition principle Accounting entity Standard of adequate disclosure Comparability Matching principle Cost principle Reliability Time period

Problem 1-15 1. The cost of leasehold improvement should not be recorded as outright expense, but should be amortized as expense over the life of the improvement or life of the lease, whichever is shorter. This is in conformity with the systematic and rational allocation principle of expense recognition. 2. The fact that the customer has not been seen for a year is not a controlling factor to write off the account. If the account is doubtful of collection, an allowance should be set up. It is only when there is proof of uncollectibility that the account should be written off. 3. Advertising cost should be treated as outright expense, by reason of the uncertainty of the benefit that may be derived therefrom in the future, in conformity with “immediate recognition principle”. 4. The balance of the cash surrender value should not be charged to loss. In reality, this is conceived as a prospective receivable if and when the policy is canceled because of excessive premium in the early stage of policy. The CSV should be classified as noncurrent investment. 5. The cost of obsolete merchandise should not be included as part of inventory but charged to expense, as a conservative approach. 6. The excess payment represents goodwill which should not be amortized but subject to impairment. Conservatism dictates that goodwill should be recognized when paid for. 7. The depreciation is not dependent on the amount of profit generated during the year. Depreciation is an allocation of cost and therefore should be provided regardless of the level of earnings.

3 8. An entry should be made to recognize the inventory fire loss, and such loss should be treated as component of income. 9. Revenues and expenses of the canteen should be separated from the revenues and cost of regular business operations in order to present fairly the financial position and performance of the regular operations. 10. The increase in value of land and building should not be taken up in the accounts. The use of revalued amount is permitted only when the revaluation is made by independent and expert appraiser. The expected sales price of P5,000,000 is not necessarily the revalued amount of the land and building. Moreover, increase in value is not an income until the asset is sold.

Problem 1-16

1. 2. 3. 4. 5.

Accrual assumption Going concern assumption Asset recognition principle Cost principle Liability recognition principle

6. Income recognition principle 7. Expense recognition principle 8. Cause and effect association principle 9. Systematic and rational allocation principle 10. Immediate recognition principle

Problem 1-17 1. 2. 3. 4. 5.

Monetary unit assumption Cost principle Materiality Time period Matching principle

6. Substance over form 7. Income recognition principle 8. Comparability or consistency 9. Conservatism or prudence 10. Adequate disclosure or completeness

Problem 1-18 1. The cost of the asset should be the amount of cash paid. No income should be recognized when an asset is purchased at an amount less than its market value. Revenue arises from the act of selling and not from the act of buying. 2. The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss is simply disclosed. To be recognized in accordance with conservatism, the contingent loss must be both probable and measurable. 3. The new car should be charged against the president and debited to receivable from officer, because the car is for personal use.

4 4. The entry is incorrect because no revenue shall be recognized until a sale has taken place. 5. Purchased goodwill should be recorded as an asset. Under the new standard, goodwill is not amortized anymore but on each balance sheet date it should be assessed for impairment.

Problem 1-19 1. 2. 3. 4. 6.

Accrual Going concern Accounting entity Monetary unit Time period

5 CHAPTER 2 Problem 2-1 Easy Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash and cash equivalents Accounts receivable Inventories Prepaid expenses Total current assets Noncurrent assets:

Note

(1)

800,000 450,000 900,000 200,000 2,350,000

Property, plant and equipment Long-term investments Intangible asset Total noncurrent assets Total assets

(2) (3)

4,400,000 950,000 800,000 6,150,000 8,500,000

LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Trade and other payables Note payable, short-term debt Total current liabilities Noncurrent liabilities: Mortgage payable, due in 5 years Note payable, long-term debt Total noncurrent liabilities Shareholders’ equity: Share capital, P100 par Share premium Retained earnings Total shareholders’ equity Total liabilities and stockholders’ equity

(4)

450,000 200,000 650,000 1,500,000 500,000 2,000,000 4,000,000 500,000 1,350,000 5,850,000 8,500,000

Note 1 - Prepaid expenses Office supplies Prepaid rent Total prepaid expenses

50,000 150,000 200,000

6 Note 2 - Property, plant and equipment Property, plant and equipment Accumulated depreciation Net book value

5,600,000 (1,200,000) 4,400,000

Note 3 - Intangible asset Patent

800,000

Note 4 - Trade and other payables Accounts payable

350,000

Accrued expenses Total

100,000 450,000

Problem 2-2 Simple Company Statement of Financial Position December 31, 2008

ASSETS

Current assets: Cash Trading securities Trade and other receivables Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Long-term investments Intangible assets Total noncurrent assets Total assets

Note

(1) (2)

420,000 250,000 620,000 1,250,000 (3) 20,000 2,560,000

(4) (5) (6)

4,640,000 2,000,000 300,000 6,940,000 9,500,000

7 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Trade and other payables Serial bonds payable - current portion Total current liabilities

Note (7)

620,000 500,000 1,120,000

Noncurrent liabilities: Serial bonds payable - remaining portion 2,000,000 Shareholders’ equity: Share capital Share premium Retained earnings Total shareholders’ equity

5,000,000 500,000 880,000 6,380,000

Total liabilities and shareholders’ equity

9,500,000

Note 1 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Claim receivable Total

500,000 ( 50,000) 150,000 20,000 620,000

Note 2 - Inventories Finished goods Goods in process Raw materials Factory supplies Total

400,000 600,000 200,000 50,000 1,250,000

Note 3 - Prepaid expenses Prepaid insurance

20,000

Note 4 - Property, plant and equipment

Land 1,500,000 Building 2,400,000 Machinery 700,000 Tools 40,000 Total 4,640,000

Cost 1,500,000

Accum. depr.

Book value -

4,000,000

1,600,000

2,000,000

1,300,000

40,000 7,540,000

2,900,000

8 Note 5 - Long-term investments Investment in bonds Plant expansion fund Total

1,500,000 500,000 2,000,000

Note 6 - Intangible assets Franchise

200,000

Goodwill 100,000 Total

300,000

Note 7 - Trade and other payables Accounts payable Notes payable Income tax payable Advances from customers Accrued expenses Accrued interest on note payable Employees income tax payable Total

300,000 100,000 60,000 100,000 30,000 10,000 20,000 620,000

Problem 2-3 Exemplar Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash and cash equivalents Trading securities Trade and other receivables Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Long-term investments Intangible assets Other noncurrent assets Total noncurrent assets Total assets

Note

(1)

500,000 280,000 640,000 1,300,000 70,000 2,790,000

(2) (3) (4) (5)

5,300,000 1,310,000 3,350,000 150,000 10,110,000 12,900,000

9 LIABILITIES AND SHAREHOLDERS’ EQUITY Note Current liabilities: Trade and other payables 1,000,000 Noncurrent liabilities: Bonds payable

(6)

5,000,000

Premium on bonds payable Total noncurrent liabilities

1,000,000 6,000,000

Shareholders’ equity: Share capital Reserves Retained earnings (deficit) Total shareholders’ equity Total liabilities and shareholders’ equity

(7) (8)

7,000,000 700,000 (1,800,000) 5,900,000 12,900,000

Note 1 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Accrued interest on notes receivable Total

400,000 ( 20,000) 250,000 10,000 640,000

Note 2 - Property, plant and equipment

Cost value Land 1,500,000 Building 3,000,000 Equipment 800,000 Total 5,300,000

Accum. depr.

Book

1,500,000

-

5,000,000

2,000,000

1,000,000

200,000

7,500,000

2,200,000

Note 3 - Long-term investments Land held for speculation Sinking fund Preference share redemption fund Cash surrender value 60,000 Total

500,000 400,000 350,000

1,310,000

Note 4 - Intangible assets Computer software Lease rights Total

10 Note 5 - Other noncurrent assets

3,250,000 100,000 3,350,000

Advances to officers, not collectible currently Long-term refundable deposit Total

100,000 50,000 150,000

Note 6 - Trade and other payables Accounts payable Notes payable Unearned rent income SSS payable Accrued salaries Dividends payable Withholding tax payable Total

400,000 300,000 40,000 10,000 100,000 120,000 30,000 1,000,000

Note 7 – Share capital Preference share capital Ordinary share capital Total

2,000,000 5,000,000 7,000,000

Note 8 - Reserves Share premium – preference Share premium – ordinary Total

500,000 200,000 700,000

Problem 2-4 Relax Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash Trade accounts receivable Inventories Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Investment in associate Intangible assets Total noncurrent assets Total assets

Note (1)

400,000 750,000 1,000,000 100,000 2,250,000

(2) (3)

5,600,000 1,300,000 350,000 7,250,000 9,500,000

11 LIABILITIES AND SHAREHOLDERS’ EQUITY

Note Current liabilities: Trade and other payables Mortgage note payable-current portion Total current liabilities

(4)

Noncurrent liabilities: Mortgage note payable, remaining position Bank loan payable, due June 30, 2010 Total noncurrent liabilities Shareholders’ equity: Share capital Reserves Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity

1,350,000 400,000 1,750,000

1,600,000 500,000 2,100,000

(5)

3,000,000 1,400,000 1,250,000 5,650,000 9,500,000

Note 1 - Trade accounts receivable Accounts receivable Allowance for doubtful accounts Net realizable value

800,000 ( 50,000) 750,000

Note 2 - Property, plant and equipment

Land Building 3,000,000 Machinery 1,800,000 Equipment Total 5,600,000

Cost 500,000 5,000,000

Accum. Book depr. value 500,000 2,000,000

3,000,000

1,200,000

400,000 8,900,000

100,000 3,300,000

300,000

Note 3 - Intangible assets Trademark Secret processes and formulas Total

150,000 200,000 350,000

Note 4 - Trade and other payables Notes payable Accounts payable Income tax payable Accrued expenses Estimated liability for damages Total

750,000 350,000 50,000 60,000 140,000 1,350,000

12 Note 5 - Reserves Additional paid in capital Retained earnings appropriated for plant expansion Retained earnings appropriated for contingencies Total

300,000 1,000,000 100,000 1,400,000

Problem 2-5 Summa Company Statement of Financial Position December 31, 2008 ASSETS Current assets: Cash Bond sinking fund Trade and other receivables Inventory Prepaid expenses Total current assets Noncurrent assets: Property, plant and equipment Investment property Intangible asset Total noncurrent assets Total assets

Note (1) (2)

700,000 2,000,000 830,000 1,200,000 100,000 4,830,000

(3) (4)

5,500,000 700,000 370,000 6,570,000 11,400,000

LIABILITIES AND EQUITY Note Current liabilities: Trade and other payables Bonds payable due June 30, 2009 Total current liabilities

(5)

2,050,000 2,000,000 4,050,000

Noncurrent liability: Deferred tax liability Equity: Share capital Reserves Retained earnings Total equity Total liabilities and equity

650,000

(6) (7)

3,500,000 500,000 2,700,000 6,700,000 11,400,000

13 Note 1 - Cash Cash on hand Cash in bank

50,000 650,000 700,000

Note 2 - Trade and other receivables Accounts receivable Allowance for doubtful accounts Notes receivable Accrued interest receivable Total

650,000 ( 50,000) 200,000 30,000 830,000

Note 3 - Property, plant and equipment Accum. Cost value Land Building Furniture and equipment 1,500,000 Total 5,500,000

Book depr.

1,000,000 5,500,000 2,400,000

2,500,000 900,000

8,900,000

3,400,000

1,000,000 3,000,000

Note 4 - Intangible asset Patent

370,000

Note 5 - Trade and other payables Accounts payable Notes payable Accrued taxes Other accrued liabilities Total

1,000,000 850,000 50,000 150,000 2,050,000

Note 6 – Share capital Authorized share capital, 50,000 shares, P100 par 5,000,000 Unissued share capital Issued share capital Subscribed share capital, 10,000 shares Subscription receivable Paid in capital Note 7 - Reserves

(2,000,000) 3,000,000 1,000,000 ( 500,000) 500,000 3,500,000

Share premium Retained earnings appropriated for contingencies Total

300,000 200,000 500,000

14 Problem 2-6 (Functional method) Karla Company Income Statement Year ended December 31, 2008

Note Net sales revenue 7,700,000 Cost of sales (5,000,000) Gross income 2,700,000 Other income 400,000 Total income 3,100,000 Expenses: Selling expenses Administrative expenses Other expenses Income before tax Income tax Net income

(1) (2)

(3)

(4) (5) (6)

950,000 800,000 100,000

1,850,000 1,250,000 ( 250,000) 1,000,000

Note 1 – Net sales revenue Gross sales Sales returns and allowances Sales discounts Net sales revenue

7,850,000 ( 140,000) ( 10,000) 7,700,000

Note 2 – Cost of sales Inventory, January 1 Purchases Freight in Purchase returns and allowances Purchase discounts Net purchases Goods available for sale Inventory, December 31 Cost of sales

1,000,000 5,250,000 500,000 ( 150,000) ( 100,000) 5,500,000 6,500,000 (1,500,000) 5,000,000

Note 3 – Other income Rental income Dividend revenue Total other income

250,000 150,000 400,000

15 Note 4 – Selling expenses Freight out Salesmen’s commission Depreciation – store equipment Total selling expenses 950,000

175,000 650,000 125,000

Note 5 – Administrative expenses Officers’ salaries Depreciation – office equipment Total administrative expenses

500,000 300,000 800,000

Note 6 – Other expenses Loss on sale of equipment Loss on sale of investment Total other expenses

50,000 50,000 100,000

Natural method Karla Company Income Statement Year ended December 31, 2008

Net sales revenue Other income Total Expenses: Increase in inventory Net purchases Freight out Salesmen’s commission Depreciation Officers’ salaries

Note (1) (2)

(3) (4)

(5)

7,700,000 400,000 8,100,000 ( 500,000) 5,500,000 175,000 650,000 425,000 500,000

Other expenses 6,850,000 Income before tax Income tax Net income

16 Note 1 – Net sales revenue Gross sales 7,850,000 Sales returns and allowances ( 140,000) Sales discounts ( 10,000) Net sales revenue 7,700,000

Note 2 – Other income Rental income 250,000 Dividend revenue 150,000 Total other income 400,000

Note 3 – Increase in inventory Inventory, December 31 1,500,000 Inventory, January 1 1,000,000 Increase in inventory 500,000

Note 4 – Net purchases Purchases 5,250,000 Freight in 500,000

(6)

100,000 1,250,000 ( 250,000) 1,000,000

Purchase returns and allowances ( 150,000) Purchase discounts ( 100,000) Net purchases 5,500,000

Note 5 – Depreciation Depreciation – store equipment 125,000 Depreciation – office equipment 300,000 Total 425,000

Note 6 – Other expenses Loss on sale of equipment Loss on sale of investment Total

50,000 50,000 100,000

17 Problem 2-7 Masay Company Statement of Cost of Goods Manufactured Year Ended December 31, 2008 Raw materials – January 1 Purchases Raw materials available for use Less: Raw materials – December 31 280,000 Raw materials used Direct labor Factory overhead: Indirect labor Superintendence Light, heat and...