Statement of Comprehensive Income

Probtem A
The fOllowing are changes in ali the account balances of Apo Co. during the year ended December 31 2014, except
tör Retained Earnings.

Increase
(Decrease)
P395,OOO
Accounts receivable (net) 948,000
Inventory (500,000)
Investments (235,000)
Accounts Payable (255,000)
Bonds 410,000
Ordinary Share Capital 300,000
Share memium 20,000

There wee no entries in the retained earnings account except for net income and a dividend declaration of P295,000
which was paid in the current year.

W'hatis APO's net income for the current year? 1+20000

PROBLEM B
The following is Neverland Company's pre-audit income statement for the year-ended December 3 i 2014:

Cost of Goods sold

Gross income
Operating expenses:
Rent expense P250,OOO
Salariesexpense 345,000
Utilities expense 219,000
Advertising expense 30,000
Warranty expense 14,000
Other expenses 35.500 893.500
Net Income P144,500
You obtained the follow ing information from the company's accounting records:
L Some of Neverland's customers pay for their order in advance. At December 3 1, 2014, orders paid for in
advance of shipment totalled PI 5,000. These have been included in the sales figure.
2. Neverland's products are sold with a 30-day mone - tee. Customers seldom returned the
products during the year. Neverland has not included in the sales gure and in cost of goods sold those
products sold within the last 30 days of the current year. The revenue is P98,000 and the cost of the
products is P63,700.
3. On July l, 2014, Neverland prepaid its offce space rent for 18 months. The amount paid, P216,000, was
recorded as rent expense.
4. The amount of P 120,000 was paid on July l, 2014, for general advertising to be completed prior to
December 31, 2014. Neverland's management believes that a 2-year period and,
therefore, has decided to charge the costs to the income statement at a rate ofP5,000 per month.
5. In prior years, Neverland has estimated warranty expense using a percentage of sales. Future warranty
costs relating to 2014 sales are estimated to amount to 2% of sales. However, during 2014, Neverland
elected to charge costs to warranty expense as costs were incurred. Neverland spent P 14,000 during 2014
to repair and replace defective products sold in current and prior years.
Answer the following questions:
1) The correct amount of Neverland's sales revenue for 2014 is 304+ 00 0

2) NeverJand's income statement for 2014 should show gross income of 10% 306

3) Neverland's total expenses (excludiong cost of goods sold) for 2014 should be g

4) Neverland's net income for 2014 (iB10re taxes) should be."

5) Prepaid advertising O
 Statement of Comprehensive Income
Problem A (Discontinued Operation)
Presented below are the condensed income statements of Georgia
Corporation for the years
ended December 31, 2014 and 2013.

2014 2013
Sales
Cost of goods sold 3.350.ooo
Gross Income 1$50,000
Operating expenses 675.000 650.000
Operating income 975,000 950,000
Gain on sale of division 200.000
P 950,000
Income tax expense (30%) -.3_ä2éLQ 285.000
Net Income 822,500 665,000
On October 10, 2014, Georgia entered into an agreement to sell the assets of one of its
geographical segments. The geographical segment comprises operations and cash flows that can
be clearly distinguished, operationally and for financial reporting purposes, from the rest of the
company. The segment was sold on December 31, 2014, for P 1,750,000. The book value of the
segment's assets was P 1,550,000. The segment's contribution to Georgia's operating income
before tax for each year was as follows:

2014 PI 13,750 loss

2013 81,250 income

Based on the above data, calculate the following:

Income from continuing operations in 2013: _(Æ--L15——

2. Income from continuing operations in

3. Net income in 2013:

4. Net income in 2014:

5. Assume that by December 31, 2014, the segment had not yet been sold but was
considered held for sale. The fair value of the segment's assets on December 31 was
P 1,750,000. The post-tax income (loss) from discontinued operations for 2014 is

6. Assume that by December 31, 2014, the segment had not yet been sold but was
considered held for sale. The fair value of the segment's assetSQQDecember 31 was
PI The post-tax loss from discontinued operation should be 2.9412.5-2

Problem B (Royalty Income)

Greenwood Co. licensed its trademark to Red Inc., for royalties of of sales of items
trademarked. The agreement provides for the following royalty payment items:
For sales in July —December of the prior year, royalties are payable on March 15.

For sales in January —June, royalties are payable on September 15 of the same year.
The following myalties were received from Red Ince
March 15 September 15
2013 45,000 53,000
2014 57,000 49,000
Trademarked items sold from July December 2014 totaled P800,000.
2014?
What is the amount of royalty income to be recognized for the year ended December 31,

Problem C (Patent)
On January 3, 2011, Tokyo Corp., purchased a patent for a new consumer product for P450,OOO•
At the time of purchase, the patent was valid for 13 years. However, the patent's useful life was
estimated to be only 10 years due to the competitivenature of the product. On December 31,
2014, the product was permanently withdrawn from the market under governmental order
because of a potential health hazard in the product.

What is the amount that should be charged against income during 2014, assuming amortization is
recorded at the end of each year? .31S

Cost of patent 450,000

Amortjan. 3, 2011 -dec. 31, 2103 (450,000 x 3/10) 135,000
Unamortized cost of the patent 315,000

Problem D (Advertising expense)

The balance of Bay Company's advertising expense account at December 31, 2014, was
P264,000 before any necessary year-end adjustment relating to the following:

1. Included in the P264,000is the P75,000 cost of product posters for a sales promotional
campaign in January 2015.

2. Radio advertisements broadcast during December 2014 were billed to Bay on January 3,
2015. Bay paid the P30,000 invoice on January 15, 2015.

What is the amount of advertising expense that should be reported by Bay in its December 31y
201q, income statement? _2_14-1.10—.--—