SOLUTION MANUAL Financlal Accounting Valix Peralta Valix VOLUME ONE - 2016 Edition CHAPTER 1 La La Lo 38 30 x0 aR ae 40 6D 66 a a) 9.3 9c 10.0, 108 Problem 1-4 Problem 15 Problem 1-6 ze 28 a ZA 50 CHAPTER 2 Problem 24 Problem 22 Problem 23 Problem 2-4 Lo Le Lo 25 ze 2A Zo ro Zo a0 ae 40 Problem 25, Problem 26 oblem 2-7 a Lo Le 2A ue 20 ac an 40 xc ae 38 7A 7A 8 ac 10. wc Frablom 2-9 2 Accounting entity 5 Nonetary unit 5 Accounting entity Problem 210 1. Time perios 2 Going concern 3 Accounting entity 2 Monetary wait, Time period Problem 2411 1 Monetary unit 2 Time period 3 Monetary unit Going concern 5 Accounting enyCHAPTER 3 Probiem 31 Problem 32 Problem 33, Problem 34 La Lo LD Lo 2D ze 2e ze ER xo xo xe SK S68 3D SA ee eB ee ue aC a ac 20 3D Probiem 35 5 & D R a € 8 1, Relevance 1. tne 2 Comparability 2. Falco 3. Undersiandabity 3 False 4 Neutrality alse 6 Materaity 6. Tue 9 Conservatism False 8, Relevance 9. Fase 10; Faithful represemsation 10, False Mi completeness 11 alse 12, Free from error 12. Face 1% Comparability, 13. False 14 Sertanitey 18 Tue AE, Timelinese 18. FaleeCHAPTER 4 Problem +1 Problem 42 Problem 43 LA Lo Lo aA Ba zc aA ue ae 68 ne 9.8 1A Problem 45, Problem 46 Problem 47 La a Lo 20 8 2A ue ® Se aa a ray i8 a 8 Problem 410 3 & newer fonageuose Problem 411 1. Systematic and rational alleeation 2. Income recognition principle 3. materiality 4. Complotanecs or standard of adequate dicelocure 5. Conservatism a aterialty Standard of adequate disclesure 3. Comparatity 10. Faihfal reproventation Probl lem 48Problem 4:12 1, Accrual 2. Asset recognition principle 5: Cost principle 4 Lbiy recognition plete 5 Income recognition principle 6. Expense recognition principle 7, Cause andeffeetstsociation & Systematicand ratloral allocation 5, immediate recognition principle 1D, Matchirg principle Problem 413 1. Cost principle 2 Matera 5. Matching principle or expense recognition principle Substance over form 5 Income recogrition principle 5 Comparability or consistency 4% Comtervatism & Completeness or standard of adequate disclosure 5. Matchicg principle 10! Conservauism Problem 4.14 1. The cost of leasehold improvement should not be recorded as ouvight expense, but’ should. be amortized as expense over the. life of the Improvemert oF Ife of the fease, whichever Is shorter. This Is In conformity with the systematicand rational lection principle af expense recage 2% The tact mat the customer has not Been seen for Years net a conraiog allowance should be set up. It Is only when there is proof of uncolecibiity {at the account stoul be written of 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, Im enfermity with “immediate recegnition principle 4 The balance of the cash suirender value should not be charged to 1035 kn ality, this s conceived as 2 prospective rectivable If and when the policy Is Canceled because of excessive premiur In the early stage of polcy. The ESV ‘Showld be classed as noncurentfavestinent '. The cost of obsolete merchandise should not be included as part of Inventory but chargedo sxpance, at 3 conservative spproach 16. The excess payment represents goodwill which should not be amorized but Subject to impairment. Conservatism dictates that goodwill should be ‘recognized when pald for. 7. The depreciation is net dependent on the amount of profit generated during the year. Depreciation 1s an allocation of cost and therefore should be provided regardless ofthe level af earnings.4 Am entry should be made to recognize the inventory fre loss, and such loss Should be weated as component ef neame. 9, Revenues, and expenses of the canteen, should be separated from the financial position and performance of the regular operations. counts. The use of revalued amount is permitted only when the revaluation ‘smideby | independert and expert appraler The far value Is nat necessary fot an income until the assets sold Problem 4.15 1. The cost of the asset should be the amount of eash pald Ne Income should be fecognized when an asset 1s purchased stan amount less than iis market Value. Revenue arises from the act of sllirg and not from the act of buying. 2. The antry should be reversed because the pending lawsuit Is a mere Contingency, The contingent toss is simply disclosed. To be recogntzed in Sccordance with conservation, the eontngent oss mist be bth probable ard measurable 3. The new car should be charged against the president and debited to ecewvable trom offer, Because tne carts for personcl Use. 4. The entry is incorrect because no revenue shall be recognized until asale has tatenplace. 5 Perchased goodwill should be recorded as an asset. Goodwill s net amortized [butit should be assessed forimpairment at feast annually. Probiem 416 - Relevance Faithful representation 5. Comparabiity and consistency 1. Completeness or ful disclosure 5. Expense recognition principle 5. Revenue recognition principle materiality 3. Expense recognition Completeness or fulldiselosure CHAPTER S Problem 51 simple company Statement of Financ Position December 31, 201 ASSETS Currentassets: Note ‘cash 420,000 Tracing secures "250,000 “Trace and ether receivables 6200000 Inventories 1.250.000 Props expenses oy 5.000 “Tora current assets 2560,000 Noncurrentassets: Property, plant and equipment (4640.00 Cong.term investments {200,000 Inangite assets (©) “300.000 "Total noncurrent assets ssan.000 Total assets 9,500,000 LUNBILITIES AND SHAREHOLOERS' EQUITY Current iailtas: Nate "Trade ard other payables 7) 620000 Strla bonds payabre = current portien 300,000 “Total current Katine 1,120,000 ‘Serial bends payable - remaining por 200,000 Shareholders equity: ‘Share capital 3,000,000 Share premium '500:000 Retained exnings 880,000 “Total shareholders" equity 6.380.000 ‘oral lablltiesand shareholders equity 3300,000,Note 1 -Trage and other receivables ‘Accounts receivable ‘Allowance for doubitul accounts Seo) Notes receivable ‘Calm recelvable etal Note 2 -Inventores ‘Finished goods Goods in precess Raw materi's +200,000 Factory supplies Total [Note 3 Prepaid expenses. Prepaid insurance 20,000, Note 4 Land Machinery Teols foperty, plant and equlpment cost 00,000 000,000 2,000,000, "40000 ‘7330000 Anvesiment In bonds nansion (urd Fetal [Note 5 Intangible assets Franchise Goodni 7 [Note 7 Trade and other payables ‘Accounts payable 300,000 Notes payable 160,000 Income tax payable ‘Ravances from customers 100,000 ‘Rccrued expenses ‘Accrued interest on note payable Employees income tx payable ‘Total Accum, dep. 1,300,000 500,000 ¢ 150,000 20.000 Ben.000 400,000 {600.000 50,000 380,000 Book value 3/408,000 700,000 {30,000 es0.000 1500.00 200,009 0.000 30,000 tolo00 20,000 620,000Problem $2 exemplar Company ‘Statement of financial Postion ‘December 31,2018 ASSETS ‘Cash and cash equivalents 500,000 ‘Trading secures 280,000 ‘Trade and other receivables 620,000 Inventories 1,300,000 Prepaid expenses 76,000 Totsl event sazete 2,790,000 ‘Property. plant ard equipment ® Long-term investments o Intangible assets @ Other noncurront accate ° Total noncurrent assets 9.110.900 ‘otal assets 12300,000 LUABILITIES AND SHAREHOLOCRS' EQUITY Note Current lables: ‘Trade and other payables © 1,000,000 ‘Bonds payable 5.000.000 Premium on bonds payable 1,000,000 Total noncorrent Rablties 6,000,000 Sharshotders' equity: ‘Share capital 7000.00 Reserves ® "“ze0000 Retained earninas (deficit) (4.800.000 “Total sharcholders"equky - 3200300 Tata iablities and shareholders‘ equity 1¥2800,000 ote 1 Trade ané other receivables ‘Alowance for doubtful accounts c 20,000) Iotes receivable 250,000 ‘Accred interest on notes recelvable ‘000 Total 610,000 ‘note 2 -Propery, plant and equipment cox Book value tana 1,300,000 1309000 Building Si0d000-2.000.0¢0 3.000.000 Equipment 7,000,000 209.000 . ‘sfooao Jou 7500000 2.200. 300,000 ote 3-Long term investments Lane held for speculation 50.000, Sinking turd 400,000 Freercnce share redemption fond 330000 Gach surrender value = 0,000 ‘ota sai.000 Note 4-Intangible assets Computer software {ease nights Total ote 5 Other noncurrent assetslecurrenly 160,000 {Cong term refundable deposit $0,000 Total 150,000 Note 6 Trade and other payables ‘Accounts payable ‘400,000 Notes payable '300,000 ‘SSS payable 10,000 ‘Accrued salaries 100,000 Dividends payable 20,000 Withholding tax payable 30,000 erat ‘900.000 Note 7 ~ share capital Preference share capital 2900000 Oudinary share capital 5900000, Tonal 1,000,000 Note 8 - Reserves ‘Share premium preference 500,000 Share premlum oxdirary 200,000 Problem 53 Relax Company Statement of Financial December 31,2010 ASSETS Current assets: Note ‘cash 00000 ‘Trade accounts receivable «75000 Inventories 1,000,000" Propaid expenses 100000 “otal current assets 2250000 Noncurrent assets: Property, plant and squlpment @) 5600000 Investment in associate "300000 Intangible assets ® 2350000, ‘Total assets 9,800,000 LIABILITIES AND SHAREHOLDERS’ EQUITY Note (Current tabiities: “Trade and other payzbles © 1350000 Mortgage note payable-crrent portion 400000 "otal eereent Habites 1.750000, [Nencurrent labilties Mortgage able, remaining postion 1,¢00900 Bank lean payable, due June 30,2018, —s00000 Total nencurrentBaitien 2.100000, Shareholders’ equity ‘Share capital 3,000,000 Reserves © 14400000 Retained earnings 11250000, “Fal shareholders equity 5650900 ‘Total liabilities and shareholders equity 9,500,000‘Note 1 -Trade accounts recivable ‘Accounts receivable ‘80q.000 ‘Aowance for doubttal accounts c S000 ‘Net realizable value 730,000 ‘note z “Property, plant and equipment Cost Accum.depr. Book value Lane s0a00 00,000 Balleing 900000 2,000 300,000 achinery 3e00e00 © 1z00900 1,800.00 Equipment 490000 © 190.000 Fat 900900 300.000 5,600,000 Note 3 -tntangibleassets Trademark 150,600. Secret processes and formulas 200000 ‘Tora 350000 Note 4 Trade and otter payables Notes payable 750,000 ‘Accounts pevable 350,000 Incorne tax payable 50000 ‘Accrued expenses 0,000. Estimated lability fordamages 140900 Total 1.350000 Note S- Reserves 300,000 ‘Retaited earnings appropriated for plant expansion 4,000,000 Retained earnings appropriaed for contingencies — oo.c00 Tana 11400900 Problem 5-4 ‘Summa Company Statement of Financial Psition December 31,2016 ASSETS Current assets: Note ‘cash to) Bend sinking fund ‘Trade and other receivables, ® Inveniory Prepaid expenses “Total current assets 4830000 Property pl 5509.00 Investment propery 700.060 Intangible asset 370,000 LUABILITIES AND EQUITY ‘Current iaitives: "Trade ard other payables “Fetal current lablinies 4050,000, ‘Noncurrent litilty: ‘Deterree tax Habily Equity: ‘share capital Reserves Retained earnings “Total equity 5,700,000, ‘Total a Wesand ecuity nds payable due June 30, 2017 Note (9) 2050¢00 2ono.coo 630,000 (@ 3,500,000 @ “500,600 2,200,000 11400,000Note 1- cash cash on hand 50,000 Cah inbank 6500000 00.000 ‘Accounts receivable 650,000 “Allowance for doubttul scceunts ¢ 50000) Notes receivable ‘ezrued interest receivable Note 3-Propeny, plant and equipment Lund 1,000,000 e 11900,000 acing 31500,000 2500;000 33000,000 Fart and equipeant 72,400,000 "900,000 11500,000 ata ‘3900000 400,000 80,000 Note 4 -Intangible asset Patent 370000 Note S-Trade and other payables ‘Accounts payable 1,000,600. Notes payable 850,000 ‘Accrued taxes Other acerued lables Fotat ‘Nove 6—Share capital ‘Authorized share capta, 50000 shares, P100 par S10.000. Unistued share capital (2.000000) Issued share capital ‘900000 Stbecribed share eaplta, 10000 shares 1.co0p0e Subscription receivable 06000)" _s00,009 Paid im capa 3500.00 Share premium 300.000 Retalned earnings appropriated f 200,000 Tota 500.000 Problem 5S Problem 56 Problem 5-7 peooooso> >ogonaansCHAPTER 5 Problem 6: (funcional method) Karla Company seame Statement Year ended December 31,2016 Note Net sales revenue o 7.700000 Cost of ates ® 15,000.00) Gross Income 2,700,000, (Other come ° ‘200,000 ‘Teta income 00,000 Expenses Distribution costs @ 980,000 ‘Administrative expenses ( “Bo0;c00 (© ""Te0;000 Other expenses 11850,000 11350000 {come Note 1 -Net sales revenue Goss sales Sdles returns ard allowances Yeo,000) Sales discounts Netsiles revenue 7.700000 [Note 2~ Cost of sales Inventory, January 1 Purchases Freight In Purchase returns and allowances Purchase elscounts Net purchases Goods available for sale Taventory, December 31 Coat of siter Note 3 Other Income Rental income Dividend revenue 000 [Note 4~Distitution costs Freight out Salesmen’s commission Depreciation ~ store equipment ‘Total istebution costs 250900 17000,000, 7,850,000 cl «10.000 090,000 5.250,000 00,000 150,000) 400000 175,000 650,000 125,000 950,000Note 5 ~ Administrative expenses onticers salaries 00,000 Depreciation ~offce equipment 300,000 ‘Total administrative expenses 200.000 Note 6 - Other expenses Lass on sale of equipment 30,000 loss on sale of investment —s0000 ‘Total other expenses 100,000) ‘Natural meshod Karla Company Income Statement ‘Year ended Gecomber 31,2016 Net sales revenue o 7700000 ther income @ -_ae.000 Total ‘100.000 Expenses: Tmcrease in inventory @ (500,000) Net purehases “s.00000 Freight out 175,000 Salesmer's commission 650,00 © 25,000 506,600 100.000 Other expenses, © 850,000 Teome before tax 250,000 come tax (250.000) ‘Net incorne 1.000.000 ‘Nove 1 Net sales revenue Gross sates 7856,000 Siles returns and allowances « 140,000, Sales discounts (19.000) Net sales revenue 7700000" Note 2 - Other Income Rental income Dividend revenue Note 3 ~mcrease ininventory Inventory December 31 Inventory, January 1 Increase a inventory 300,000Note 4 Net purchases, Purchases 5250000 Freight in '306,000 Purchase returns and allowances (i 150,000) Purchase discounts 100.000) Net purchases 500,000, ‘Nove 5 ~ Depreciation Deprecation store equipment 125,000 300,000 Tota 325000 Note 6 Other expenses Loss onsale of equipment 30009 Loss on sale of investment 50.009 Total eager Problem 62 Masay Company Statement of Cost of Goods Manufactured ‘Year Ended December 31,2016, Raw materials - January 1 200,000" Purchases 3.000000 ‘Raw materials availabe for use 3200000 Ceas:Raw materials = December 31 Raw materials used 2920,000 Direc labor ‘350,000, Factory everhead! Indivect labor 250,000 Superintendence 210,000 Light.heat ard power 320,000 Rent factory butlding 120,000 ‘Repair and malinienance~ mack ‘5,000 Facory supplies used e000 DBapretaion- machinery 69,000 1,120,000 4990000, Goods in process - January t 240,000 ‘Total Cost of goods in process 5230000 Leas: Goods in process” December 31 T2000 (Cost of goods manufactured sheagdy Cost of sales method Massy Company, Year ended December 31,2016 Net sales revenue w 750,000 Cost of goods sold a 6.120.000) {Gross Income 3,330,000 (ther income o ‘210,¢00 ‘Total income 540,000, Expenses: Distribution costs @ 820000 ‘Administrative expenses (590,000 Siner expense (© 300000 720.000 Income before tx 20,000" ecome ax expense 320000) [Net income 300,000 7,500,000 Cc‘Net sales revenue 730,000 ote 2~ Cost of goods sold Finished goods ~ Janeary 1 (Cost of goods manuracturee Socooco Goods avallable for sale Finishes goods - December 31 Cost of goods told ote 3 - Other Income ‘ain from expropriation Gainon sale of equipment ‘Note 4 - Distribution casts Sales salaries averting ‘Depreciation -store equipment Detivery expenses 200000 Total ote 5 ~ Administrative expenses Office salaties 150,000 Depreciatcn -ofice equipment 40,000 ‘Accounting and legal fees S000 ifice expenses ote 6 Otrerexpense Earthquake loss [Nature of expense method Masay Company Income Statement ‘Year Ended December 3, 2016 Net sales revenue w "7.450000 Other income o oral income Expenses: ‘Decrease in finished goods and goods in process) Raw materials used ® Direct labor Factory overhead o ¥30,000 2:920,000 ‘950,000 120,000 360,000 520,000 100,000 10,000 100,090 219,000 409,000 166,000 70.000 330,000 250,000 520,000 210.000 660,000Salaries Aavertising Deprecati Delivery expenses ‘Accounting and legal fees Orfice expenses Other expense Income before Income tax expense Net income Note 1 Net sales reverue Sales Sales returns and allowances a0 7450500 Note 2 - Other income Gain from expropriation Interest Income Gann sale of equipment (© 50,00 50,000 —nr0800" 200,000 130,000 250,000 (% _ 300,600 6.810.000 ‘ete 3 - Decrease In finished goods and goods in process Jawary t Finkahed goo! “Teo000 Geods in process 240000 Total 200.000 Note 4 Rawmaterias used ‘Raw materials - January 1 Raw materials available for use ‘Raw materials - December 31 280,000 Raw materials used Note 5 Factory overheaé Indirect labor Superiatendence Lights best and power 320,000 Fen» factory bulléing ‘Repair ard maintenance - machinery 50,000 | December 31 700000 170000 70000 320.000) —300.090 7.500.000 100,000 10,000 00.000 210.000, Decrease 0,000 70,000 T30,000 3.000.000 3,200,000, 2,920,000 250000 Fo,000 120.000Factory supplies used Bepreciotion - machinery — s9000 Note 6- Salaries Sates salaries 400,000 ‘Ounce salaries 450,000 Tora 550,000 [Note 7 - Depreciation 70.000 16.000 artnquake iss 300,000 Problem 63 Christian Company Statement of Cost of Goods Manulactured ‘Yeat Ended December 31,2016 purchases Freight Total Increase in caw mazerials ‘100:000) Raw materials used Drect labor Factory overhead! Indirect labor 600,000 Depreciation - machinery 50,000, Factory ter 130000 Factory supplies expense 120,000 Factory superintendence 480,600 Factory maintenance ‘so,000 Factory Feat ight and power 220,000 ‘17500000 “Totalmamutactering cst ‘4810009 Decrease In gocds in process _ soso (Cost of goods manufactured ‘4900.00 Chistian Company Tncome Statement Year Ended December 31,2016 Note Sates revenue 000,000 Cost of gonds sold o 5109.000) Gross income "300,000, Distribution costs 300000 ‘Administraive expenses G) s30000 1,730, Incame before tnx n1Te,000. Income tax expense c 170009 Netincome -4000,000 Costof goods sold Cost of goods manufactured ‘000,060 Decrease In finshed goods Cost of gonds sold, Note 2 Distribuilon costs Sales salaries $20,000 Advertising T2000 Detivery expense teeoco Tota! ‘500,000 Note 3~ Administrative expenses Office upoies expense ‘20000 Office salaries 0c.000 Yocoos Tota! 930000Problem 64 Ronald Company Statement of Cost of Goods Manufactured ‘Year Ended December 31,2016, Materials < January 1 "120,000 urchases Freighton purchases Purchase d sceunts Materials available fr use ese Materials ~ December 31 Materials used "360,000. Direct labor Repairs and maintenance Iealrect labor Other factory overhead Factory supoties used (300,000 + 660.000 - $40,000, Depreciation = factory building ‘Total manufacturing coo ‘460.000 Goodsin process - January 1 360,000 ‘otal cost of goo¢s in process 520000 {ess Goods inprocers~ December 31 320000 Cost of goods manuta 500.000, Ronald Company Income Statement ‘Year Ended December 31,2016, Not sales revenue o 980,000 ost of goods sold @ {ross income Other income o ‘otal income Expenses: Distribution costs 200900 ‘Administrative expenses. 340900 _540,000 income betore tae "1200,000 Income tax expense [Note 1 -Net sales revenue Sites Sales returns and allowances ¥40,000) Net sales revenue 16380,009 Note 2 Cost of goods sold Finished goods January 1 20.000 (Cost of goods manufactured Goods avallable for sale 5.920.600 Finished goods - December 31 «320,000 Cost of goods sold "500,000 Note3 - Other income Interest revenue 150,600 Problem 65 Froblem 65 Problem 6-7 on>ee € 5 D D €