CHAPTER 4 THE STATEMENT OF COMPREHENSIVE INCOME AND THE STATEMENT OF CHANGES IN EQUITY PROBLEMS 4-1. (LAS VEGAS COMPANY) Capital, December 31, 2012 Total assets Less total liabilities Capital, December 31, 2011 Total assets Less total liabilities Increase in capital Withdrawals by the owner Additional investments by the owner Profit
P1,218,000 276,000 P 970,000 202,000
4-2. (BELLAGIO TRADING COMPANY) Debit changes Increase in assets Decrease in liabilities Credit changes Increase in share capital Increase in share premium Increase (decrease) in retained earnings Dividends Profit for the year
P600,000 250,000 P400,000 125,000
4-3. (VENETIAN COMPANY) Raw material purchases Increase in raw materials inventory Raw materials used Direct labor Factory overhead Total manufacturing costs Increase in work in process inventory Cost of goods manufactured Decrease in finished goods Cost of goods sold for 2008 4-4.
P942,000
768,000 P174,000 250,000 (100,000) P324,000
P850,000 525,000 P325,000 120,000 P445,000
P430,000 (15,000) P415,000 200,000 300,000 P915,000 (20,000) P895,000 35,000 P930,000
(MGM COMPANY) Cost of goods manufactured Finished goods, beginning Finished goods, end Cost of goods sold Gross profit Sales
P2,720,000 380,000 (418,000) P2,682,000 962,000 P3,644,000
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Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity 4-5.
(MANDALAY COMPANY) Let x = cost of sales .30x = .18 sales x = .18/.30 sales x = .60 sales Therefore, 100% - 60% - 18% - 12% = 10% Sales = 280,000/10%; Sales = 2,800,000 Cost of sales = 60% x 2,800,000 = 1,680,000 Income tax is ignored.
4-6.
(EXCALIBUR PRODUCTS) Excalibur Products Income Statement For the Year Ended December 31, 2012 Sales Cost of sales Beginning inventory Purchases Ending inventory Gross profit Selling expenses General and administrative expenses Profit before income tax Income tax Profit
P895,000 P126,000 466,250 (189,500)
(402,750) P492,250 (161,100) (128,880) P202,270 (60,681) P141,589
4-7. (LUXOR COMPANY) Requirement a (nature of expense method) Luxor Company Statement of Comprehensive Income For Year Ended December 31, 2012 Note PROFIT OR LOSS Net sales revenue Rent revenue Total revenues Operating Expenses Net purchases Increase in inventory Delivery expense Advertising expense Salaries and commissions Depreciation expense Supplies expense Bad debts expense Insurance and taxes Other operating expenses Total Operating Expenses
(11)
P3,359,000 105,000 P3.464.000
(12) (13)
1,762,000 (105,000) 77,000 170,000 502,000 241,000 75,000 27,000 85,000 170,000 3,004,000
(14) (15) (16) (17)
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Total
Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity Profit from Operations Interest expense Profit before income tax from continuing operations Income tax expense Profit from continuing operations Discontinued operations, net of tax (18) Profit OTHER COMPREHENSIVE INCOME Unrealized Gains on Investments at fair value through other comprehensive income, net of P24,000 income tax Actuarial Gains Taken to Equity, net of P12,000 income tax Total Other Comprehensive Income TOTAL COMPREHENSIVE INCOME
P460,000 ( 37,000) P423,000 126,900 P296,100 (245,000) P 51,100
P 56,000 28,000 P 84,000 P135,100
Notes to Financial Statements (after presenting notes for basis of presentation and summary of significant accounting policies) Note11 – Net sales revenue Sales Less sales discounts Sales returns and allowances Net sales revenue
P3,529,000 P 49,000 121,000
Note 12 – Net purchases Purchases Add freight-in Total Less purchase discounts Purchase returns and allowances Net purchases
170,000 P3,359,000
P1,730,000 135,000 P1,865,000 P41,000 62,000
103,000 P1,762,000
Note 13 – Increase in inventory Inventory, December 31 Inventory, January 1 Increase in inventory
P446,000 341,000 P105,000
Note 14 – Salaries and commissions Sales commissions and salaries Office salaries Total salaries and commissions
P182,000 320,000 P502,000
Note 15 – Depreciation expense Depreciation – Buildings and office equipment Depreciation – Store equipment Total depreciation expense
P145,000 96,000 P241,000
Note 16 – Supplies expense Store supplies expense Office supplies expense Total supplies expense
P56,000 19,000 P75,000
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Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity Note 17 – Other operating expenses Loss on sale of equipment Loss from typhoon Total other operating expenses
P 50,000 120,000 P170,000
Note 18 – Discontinued Operations Revenues Expenses Profit (loss) before income tax Income tax benefit Profit (loss) from operations of discontinued operations Loss on sale of assets, net of tax benefit of P60,000 Discontinued Operations
P 900,000 (1,050,000) P (150,000) 45,000 P (105,000) (140,000) P (245,000)
(function of expense method) Luxor Company Statement of Comprehensive Income For Year Ended December 31, 2012 Net sales revenue Cost of goods sold Gross profit Other Operating Income Rent Revenue Total Income Operating Expenses Selling Expenses General and Administrative Expenses Other Operating Expenses Total Operating Expenses Profit from Operations Interest expense Profit before income tax from continuing operations Income tax expense Profit from continuing operations Discontinued operations, net of tax Profit OTHER COMPREHENSIVE INCOME Unrealized Gains on Investments at fair value through other comprehensive income, net of P24,000 income tax Actuarial Gains Taken to Equity, net of P12,000 income tax Total Other Comprehensive Income TOTAL COMPREHENSIVE INCOME
Note (11) (12)
Total P3,359,000 1,657,000 P1,702,000 105,000 P 1,807,000
(12) (13) (14)
(18)
P581,000 596,000 170,000 P1,347,000 P460,000 ( 37,000) P423,000 126,900 P296,100 (245,000) P 51,100
P 56,000 28,000 P 84,000 P135,100
Notes to Financial Statements (after presenting notes for basis of presentation and summary of significant accounting policies)
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Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity Note 11– Net sales revenue Sales Less sales discounts Sales returns and allowances Net sales revenue
P3,529,000 P 49,000 121,000
Note 12 – Cost of goods sold Inventory, January 1 Purchases Add freight-in Total Less purchase discounts Purchase returns and allowances Cost of goods available for sale Less Inventory, December 31 Cost of goods sold
170,000 P3,359,000 P341,000
P1,730,000 135,000 P1,865,000 (41,000) (62,000)
1,762,000 P2,103,000 446,000 P1,657,000
Note 13 – Selling expenses Sales commissions and salaries Store supplies expense Delivery expense Advertising expense Depreciation expense – store equipment Total selling expenses
P182,000 135,000 77,000 170,000 96,000 P581,000
Note 14 – General and Administrative expenses Bad debts expense Office supplies expense Insurance and taxes Office salaries Depreciation – buildings and office equipment Total administrative expenses
P27,000 19,000 85,000 320,000 145,000 P596,000
Note 15 – Other operating expenses (continuing operations) Loss on sale of equipment Loss from typhoon Total other operating expenses
P 50,000 120,000 P170,000
Note 16 – Discontinued Operations Revenues Expenses Profit (loss) before income tax Income tax benefit Profit (loss) from operations of discontinued operations Loss on sale of assets, net of tax benefit of P60,000 Discontinued Operations
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P 900,000 (1,050,000) P (150,000) 45,000 P (105,000) (140,000) P (245,000)
Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity Requirement b Luxor Company Statement of Changes in Equity For the Year Ended December 31, 2012 Ordinary Share Reserves Balances, January 1 P700,000 P660,000 Correction of prior year’s income due to understated depreciation, net of P54,000 income tax Restated balances, January P700,000 P660,000 Issuance of ordinary shares 100,000 40,000 Comprehensive Income 84,000 Dividends declared Balances, December 31 P800,000 P784,000
Retained Earnings P1,785,000 (126,000) P1,659,000 51,100 (60,000) P1,650,100
Total P3,145,000 (126,000) P3,019,000 140,000 135,100 (60,000) P3,234,100
Reserves at January 1 included the share premium (P610,000) and unrealized gain on investments carried at fair value through OCI (P50,000). The amounts may be reported in separate columns. 4-8.
(TRUMP COMPANY) a. Revenues Selling and Administrative Expenses Disposal costs Operating Profit (Loss) before income tax Income tax benefit Operating Profit (loss)
P5,000,000 5,080,000 (75,000) P(155,000) 46,500 P(108,500)
Fair value less cost to sell is P830,000 (980,000 – 150,000) which is greater than the carrying amount of P800,000. b. Revenues Selling and Administrative Expenses Disposal costs Operating Profit (Loss) before income tax Income tax benefit Operating Profit (loss) Loss from measurement to NRV, net of income tax benefit of P54,000 Discontinued Operations
P5,000,000 5,080,000 (75,000) P(155,000) 46,500 P(108,500) (126,000) P(234,500)
Fair value less cost to sell is P620,000 which is P180,000 lower than the carrying amount of P800,000, which is reported as loss from measurement to NRV.
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Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity 4-9. (CAESARS PALACE COMPANY) Caesars Palace Company Statement of Changes in Equity For the Years Ended December 31, 2012 and 2011
January 1, 2011, balances as previously reported Prior period adjustment 2010 expense charged erroneously to Equipment, net of income tax of P24,000 January 1, 2011 balances, as restated 2011 Changes Profit Dividends Balances, December 31, 2011 2012 Changes Profit Dividends Balances, December 31, 2012
Share Capital P2,000,000
Retained Earnings P1,500,000
Total P3,500,000
P2,000,000
(56,000) P1,444,000
(56,000) P3,444,000
P2,000,000
514,000* (200,000) P1,758,000
514,000 (200,000) P3,758,000
P2,000,000
750,000 (500,000) P2,008,000
750,000 (500,000) P4,008,000
Note: The solution above disregards the effect of income tax. 2011 Restated profit = P500,000 + depreciation erroneously recognized (20,000 x 70%).
4-10.
(TUSCANY COMPANY) Tuscany Company Comparative Income Statements For the Years Ended December 31, 2012 and 2011 2012 P3,000,000 (1,420,000) 1,580,000 (350,000) (260,000) P970,000 (291,000) P 679,000
Sales Cost of goods sold Gross profit Selling expenses General and administrative expenses Profit before income tax Income tax Profit Ending inventory, 2011, as reported Cost of goods sold, as reported in 2011 Goods available for sale Beginning inventory, as reported in 2011 Purchases in 2011
P 355,000 1,140,000 P1,495,000 250,000 P1,245,000
Purchases P1,245,000 Inventory, beg (weighted average) 210,000 Inventory, end (weighted average) (312,000) Restated Cost of sales in 2011, weighted average P1,143,000
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2011 P2,540,000 (1,143,000) 1,397,000 (210,000) (220,000) P967,000 (290,100) P 676,900
Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity Tuscany Company Statement of Changes in Equity For the Years Ended December 31, 2012 and 2011 Share Capital P1,000,000
Retained Earnings P 600,000
Total January 1, 2011, balances as previously reported P1,600,000 Cumulative effect of changing from FIFO to weighted average method of inventory costing, net of income tax of P12,000* (28,000) (28,000) January 1, 2011 balances, as restated P1,000,000 P572,000 P1,572,000 2011 Changes Profit 676,900 676,900 Dividends (400,000) (400,000) December 31, 2011 balances P1,000,000 P848,900 P1,848,900 2012 Transactions Profit 679,000 679,000 Balances, December 31, 2012 P1,000,000 P1,527,900 P2,527,900 * based on 30% income tax rate Cumulative effect shown on the statement of changes in equity Difference in beginning inventory of 2011 (250,000-210,000) P40,000 Applicable tax (30% x 40,000) 12,000 Net adjustment (deduction) from retained earnings, January 1, 2011 P28,000 The cumulative effect, however, is taken up in the books during 2012, when the change was decided upon by the management. The following 2012 entry: is made: Retained earnings 30,100 Income tax payable 12,900 Inventory, beginning (or cost of sales) 43,000 Thus, the retained earnings at December 31, 2012 is P879,000 - 30,100 + 679,000 = P1,527,900. 4-11. (RIVIERA COMPANY) Riviera Company Comparative Statement of Comprehensive Income For Year Ended December 31, 2012 and 2011 (In million pesos)
Revenue Raw materials and consumables used Employee benefit expense Depreciation and amortization Other expenses Income from operations Finance costs Profit before income tax Income tax expense Profit for the year Other comprehensive income Unrealized gains (losses) on investments measured at fair value through other comprehensive income, net of applicable tax Total comprehensive income
25
2012 P2,000 (850) (100) (40) (2) P1,008 (4) P1,004 (301.2) P702.8
2011 P1,800 (745) (95) (40) (3) P917 (5) P912 (273.6) P638.4
.56 P703.36
(.84) P637.56
Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity MULTIPLE CHOICE Theory MC1 MC2 MC3 MC4 MC5 MC6
D C D A A B
Problems MC25 D MC26
C
MC27
A
MC28 MC29 MC30 MC31 MC32
A A D B B
MC33 MC34 MC35 MC36 MC37 MC38 MC39 MC40 MC41
C C B C C B D B D
MC42
C
MC43 MC44 MC45
D C B
MC46 MC47 MC48 MC49 MC50 MC51
D D C B A B
MC52
MC7 MC8 MC9 MC10 MC11 MC12
A A A D D B
MC13 MC14 MC15 MC16 MC17 MC18
B B A D B D
MC19 MC20 MC21 MC22 MC23 MC24
B B B D C C
210,000 – 50,000 = 160,000; 260,000 – 60,000 = 200,000 200,000 – 160,000 = 40,000 + 12,000 – 50,000 = 78,000 LOSS 225,000 + 100,000 + 10,000 + 15,000 = 350,000; 150,000 + 50,000 + 20,000 + 100,000 + 15,000 = 335,000 350,000 – 335,000 = 15,000 + 25,000 – 125,000 = 85,000 LOSS 21,000+25,000–10,000+70,000+5,000–(5,000 x 8)+15,000–50,000–1,000– 20,000=15,000 150,000 + 80,000 + (220,000 x ½) + 140,000 = 480,000 170,000 + (240,000 x ½) = 290,000 150,000 x 8 = 1,200,000 + 80,000 = 1,280,000 272,000 + 36,000 – 41,600 = 266,400 + 76,800 = 343,200 .125/.25 = .50; 100% - 50% - 12.5% - 17.5% - 5% = 15% 750,000/15% = 5,000,000 x 50% = 2,500,000 5,800,000–(4,800,000+650,000–550,000)=900,000–(7.5%,x900,000)=532,500 .15/.25=60%; 100%-60%-10% - 15% - 3% = 12%; 480,000/12% = 4.0M 1,080000/80% = 1,350,000/90% = 1,500,000 x 30% = 450,000 3,500,000/70% = 5,000,000 5M-3.5M=1.5M – (60% x 1.5M) = 600,000 3,500,000 – 500,000 = 3,000,000 600,000+900,000 – 1,000,000 = 500,000 P1,550,000 – P1,100,000 = 450,000 450,000 + 600,000 – 250,000 = 800,000; ending inventory before write off is P100,000 + 150,000 = 250,000 5,000,000 + 28,000 + 520,000 – 280,000 – 500,000 – 720,000 – 110,000 + 16,000 + 100,000–400,000+55,000–70,000–50,000–80,000– 120,000 – 450,000 = 419,000 500,000 + (400,000 X 60%) + 70,000 + 120,000 = 930,000 450,000 + 2,800,000 + 80,000 – 520,000 = 2,810,000 Cost of sales = 20/50 = 40% 100%-40% = 60% - 20%-5% = 35% Profit before tax 2,450,000/70% = 3.5M; 3.5M/35% = 10M;10M x 40% = 4M CGS x 130%=5.2M 2,000,000 + 100,000 – 2,100,000 = 0 0 + gain of P1,000,000 on disposal – income tax of P300,000 = 700,000 (3,500,000 – 500,000) x 70% = 2,100,000
(360,000 – 320,000) x 70% = P28,000 400,000 – 84,000 + 40,000 – 4,000 – 280,000 = 72,000; 72,000 x 70% = 50,400 Total profit = P50,400 + (40,000 x 70%) =78,400 1,600,000 + (16,000 x 70%) – (24,000 x 70% )+ 78,400 ) – 12,000 = P1,660,800 400,000 – 84,000 + 40,000 – 4,000 – 280,000 + 40,000 = 112,000 112,000 x 70% = 78,400
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