CHAPTER THE BALANCE SHEET AND NOTES TO THE FINANCIAL STATEMENTS 3-1 (Gates Company) Gates Company Balance Sheet December 31, 2007 Current assets: Cash and cash equivalents Trading securities Trade receivables Inventory Noncurrent assets: Property, plant and equipment Investment Property Investments in associates Intangibles TOTAL ASSETS Assets Note P (1) (2) (3) 35,000 61,000 107,000 322,000 P1,483,000 1,000,000 250,000 141,000 P 525,000 2,874,000 P3,399,000 Liabilities and Shareholders’ Equity Current liabilities: Trade and other payables (4) P 336,000 Noncurrent liabilities: Bonds payable (5) 701,000 Shareholders’ equity: Share capital (6) P 1,534,000 Reserves (7) 366,000 Retained earnings 462,000 2,352,000 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P3,399,000 Note – Trade receivables Accounts receivable Less Allowance for doubtful accounts Net trade receivables P115,000 8,000 P107,000 Note – Property, plant and equipment Land Buildings Less accumulated depreciation Equipment Less accumulated depreciation Total property, plant and equipment P1,440,000 530,000 P 624,000 351,000 Note – Intangibles Patents, net of accumulated amortization of P22,000 Trademarks, net of accumulated amortization of P17,000 Total P 300,000 910,000 273,000 P1,483,000 P 98,000 43,000 P141,000 Note – Trade and other payables Accounts payable Salaries payable Withholding taxes payable Total P236,000 20,000 80,000 P336,000 Note – Bonds payable Bonds payable (due 2009) Less discount on bonds payable Total P 770,000 69,000 P701,000 Note – Share capital Preference share, P100 par Ordinary share, P10 par Stock dividends distributable Total P 210,000 300,000 24,000 P 534,000 Note – Reserves Paid-in capital in excess of par-preference Paid-in capital in excess of par-ordinary Appropriated retained earnings Total P 81,000 240,000 45,000 P366,000 3-2 (Starbucks Company) Starbucks Company Balance Sheet December 31, 2007 Current assets: Note Cash and cash equivalents P 116,000 Trading securities (1) 160,000 Trade receivables (2) 308,000 Inventories (3) 985,000 Prepaid expenses 31,000 P1,600,000 Noncurrent assets: Property, plant and equipment (4) P2,248,000 Other financial assets (5) 339,000 Patents 182,000 2,769,000 Non-current Asset Held for Sale (6) 210,000 TOTAL ASSETS P4,579,,000 Liabilities and Shareholders’ Equity Current liabilities: Trade payables P 580,000 Income tax payable 247,000 Unearned revenues 62,000 Liability for product warranty 73,000 P 962,000 Noncurrent liabilities: Bonds payable (7) 848,000 Stockholders’ equity: Share capital (8) P1,028,000 Reserves (9) 537,000 Retained earnings 1,204,000 2,76,000 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P4,579,000 Note – Temporary investments The trading securities, costing P150,000, are reported at market values Note – Trade receivables Accounts receivable Less Allowance for doubtful accounts Net trade receivables P323,000 15,000 P308,000 Note – Inventories (at lower of cost or NRV) Finished Goods Goods in process Raw materials Total P416,000 347,000 222,000 P985,000 Note – Property, plant and equipment Land Land Held for Future Use* Buildings Less accumulated depreciation Machinery Less accumulated depreciation Equipment Less accumulated depreciation Total • P320,000 195,000 P1,824,000 622,000 P 319,000 106,000 P 530,000 212,000 1,202,000 213,000 318,000 P2,248,000 Land Held for Future Use, which conventionally was classified as long-term investment, is not qualified to be reported as Investment Property under par of PAS 40 Thus, property held for future development and subsequent use as owner-occupied property is part of property, plant and equipment Note – Other financial assets Held to Maturity Securities, at amortized cost Cash surrender value of life insurance Total P250,000 89,000 P339,000 Note – Non-current Assets Held for Sale This classification represents a unit of machinery with carrying amount of P240,000 and fair value less cost to sell of P210,000 The sale is expected to be consummated in May 2008 Note – Bonds payable Bonds payable Add Premium on bonds payable Total P800,000 48,000 P848,000 Note – Share Capital Preference share Ordinary share Total P400,000 628,000 P1,028,000 Note – Reserves Paid-in capital in excess of par-preferred Paid-in capital in excess of par-common Total P234,000 303,000 P537,000 Retained earnings is adjusted by a decrease of P30,000 representing loss from measurement to fair value less cost to sell of asset held for sale, thus retained earnings balance is P1,204,000 3-3 (Bill Company) Bill Company Balance Sheet December 31, 2007 Assets Current assets: Cash Trading securities Trade receivables Inventories Prepaid expenses Noncurrent assets: Property, plant and equipment Available for sale securities Patents TOTAL ASSETS Note (2) P 230,000 320,000 510,000 600,000 200,000 (3) P3,450,000 (1) 1,030,000 470,000 P1,860,000 4,950,000 P6,810,000 Liabilities and Shareholders’ Equity Current liabilities: Trade and other payables Unearned rent Noncurrent liabilities: Bonds payable Shareholders’ equity: Ordinary Share Capital, P10 par Share Premium Retained earnings Total Less Treasury shares, at cost TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (4) P1,390,000 90,000 (5) P1,480,090 1,000,000 P1,200,000 1,040,000 2,420,000 P4,660,000 330,000 4,330,000 P6,810,000 Note – Trade receivables Accounts receivable Less Allowance for doubtful accounts Net trade receivables P590,000 80,000 P510,000 10 Note – Prepaid expenses Office supplies Prepaid insurance Total P 80,000 120,000 P200,000 Note – Property, plant and equipment Land Buildings and equipment Less accumulated depreciation Total P 810,000 P3,560,000 920,000 2,640,000 P3,450,000 Note – Trade and other payables Accounts payable Salaries payable Taxes payable Total P 990,000 150,000 250,000 P1,390,000 Note – Bonds payable Bonds payable Less discount on bonds payable Net P1,100,000 100,000 P1,000,000 3-4 (Net Company) Net Company Balance Sheet December 31, 2007 Current assets: Cash Current marketable securities Trade receivables Inventories Prepaid insurance Noncurrent assets: Property, plant and equipment Other financial assets Intangibles TOTAL ASSETS Assets Note (1) (2) (3) (4) P 380,000 460,000 2,780,000 3,050,000 290,000 P 7,100,000 1,600,000 960,000 Liabilities and Shareholders’ Equity Current liabilities: Trade and other payables (5) P 2,750,000 Income taxes payable 720,000 Noncurrent liabilities: Bonds payable (6) Mortgage payable Stockholders’ equity: 11 P 4,430,000 1,600,000 P 6,960,000 9,660,000 P16,620,00 P 3,470,000 6,030,000 Share capital (7) Paid-in capital in excess of par Retained earnings Total P 1,700,000 1820,000 3780,000 P 7,300,000 180,000 Less Treasury stock, at cost TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 7,120,000 P16,620,00 Note – Trade receivables Accounts receivable (1,850,000 + dishonored notes receivable of P1,000,000) Less Allowance for doubtful accounts Net trade receivables Note – Property, plant and equipment Land Buildings P2,850,000 70,000 P2,780,000 P1,200,000 P6,340,00 2,100,000 P2,960,00 1,300,000 Less accumulated depreciation Equipment Less accumulated depreciation Total Note – Other financial assets Investment in Day Corporation bonds Sinking fund for bond retirement Total 4,240,000 1,660,000 P7,100,000 P 900,000 700,000 P1,600,000 Note – Intangibles Patents Less accumulated amortization Trademarks Less accumulated amortization Total P820,000 230,000 P520,000 150,000 P 590,000 370,000 P960,000 Note – Trade and other payables Accounts payable Wages payable Current portion of mortgage payable Total P1,940,000 410,000 400,000 P2,750,000 Note – Bonds payable Bonds payable Add premium on bonds payable Total P4,000,000 430,000 P4,430,000 Note – Share capital Preference share Ordinary share Total P600,000 1,100,000 P1,700,000 12 3.5 (Makati Company) Current assets consist of: Cash (1,240,000 – 500,000) Trading securities (900,000 + 500,000) Trade accounts receivable (net of P60,000 allowance for bad debts) 1,220,000 + 70,000 – 60,000 Notes receivable Creditor’s account with debit balance Merchandise inventory Total current assets Current liabilities consist of: Trade accounts payable (750,000 + 150,000 + 120,000) Customer deposit Notes payable (1,500,000 – 300,000) Current portion of bonds payable Income taxes payable Employees income tax withheld Total current liabilities 3-6 (Internet Company) Current liabilities consist of: Accounts payable Mortgage notes payable Bank notes payable Interest payable VAT payable (2,688,000/1.12) x 12 Withholding tax payable Income taxes payable (86,500 – 55,000) Total current liabilities P 740,000 1,400,000 1,230,000 920,000 120,000 1,360,000 P 5,770,000 1,020,000 70,000 1,200,000 500,000 280,000 40,000 P 3,110,000 P 270,000 1,300,000 100,000 7,500 288,000 120,000 31,500 P2,117,000 Note: The entire amount of Mortgage notes payable is classified as current liabilities because as of December 31, 2007, the company has no discretion yet to refinance the obligation on a long-term basis The refinancing of the mortgage payable in 2008 is non-adjusting event that requires disclosure in the notes to the financial statements 3-7 (Jig Company) Current assets consists of: Cash (400,000 + 20,000 + 35,000 + 540,000) Accounts receivable (net) Inventories (1,200,000 – 40,000) Prepaid insurance (250,000 – 50,000) Total current assets at December 31, 2007 or Reported total Bank overdraft Cash for purchase of plant site Unreplenished petty cash expenses Goods held on consignment Cash surrender value of life insurance 13 P 995,000 650,000 1,160,000 200,000 P3,005,000 P4,580,000 20,000 (1,500,000) ( 5,000) ( 40,000) ( 50,000) Total current assets at December 31, 2007 3-8 P3,005,000 (Streamer Company) Current assets P3,500,00 Reported totals (a) Retirement fund cash (b) Treasury shares (c) Cash fund for taxes (d) Advances and commissions payable Correct totals Non-current assets P8,000,000 Current liabilities P2,400,000 Non-current liabilities P2,700,000 380,000 (500,000) 140,000 210,000 P3,850,00 3-9 (Ping Company) (a) Post dated check recorded (b) Goods shipped FOB destination (c) Goods out on consignment Correct balances, Dec 31, 2006 140,000 210,000 P2,750,000 P7,880,000 Cash Reported amounts 380,000 P536,00 80,000 P3,080,000 Accounts Receivable P3,285,000 Inventorie s P3,500,00 80,000 120,000 (180,000) P616,00 (Lime Company) Current assets: Accounts receivable (net) Citibank current account Inventories Current liabilities: Accounts payable Income tax payable Advances from suppliers Accrued interest on bonds payable Provision for warranties 367,000 Working capital 84,500 135,000 P3,835,00 P3,105,000 3-10 MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8 MC9 D A A C A C D D C P136,000 217,500 P124,000 16,000 150,000 17,000 60,000 MULTIPLE CHOICE QUESTIONS MC11 C MC12 D MC13 C MC14 D MC15 B MC16 A MC17 C MC18 D MC19 C 14 98,000 P451,500 P MC 21 MC 22 MC 23 MC 24 MC 25 D C C A B MC10 B MC26 A MC27 MC28 MC29 MC30 B B D C MC31 B MC32 B MC33 MC34 C A MC35 A MC36 MC37 MC38 A C A MC39 MC40 MC41 MC42 MC43 B D D A D MC44 MC45 B C MC46 MC47 MC48 B B C MC49 MC50 MC51 B A C MC20 C (200,000-50,000) + 120,000 + 80,000 + (280,000– 60,000) – 1,000=569,000 374,000 + 5,000 – 400 + 10,000 – 18,000 + 5,000 = 3,750,600 268,000 + 5,000 + 10,000 +5,000 – 100,000 = 1,880,000 401,400 – 900 - 15,000 = 3,855,000 (124,000 + 3,000) + 90,000 + 92,000 + (122,000 + 7,000) – 6,000 + 136,000 + 12,000 = 590,000 13,000 + (75,000 + 12,000 + 15,000) + 7,000 + (150,000 – 30,000) + 4,000 + 50,000 + 28,000 = 324,000 (1,125,000+65,000) + 136,000 + 96,000 + 150,000 + (750,000/5)=1,722,000 376,000 + (2,000,000+100,000 – 8,000) = 2,468,000 360,000 + 480,000 – 30,000 – 12,000 + 90,000 + 120,000 = 1,008,000 450,000 + 750,000 – 90,000 + 240,000 = 1,350,000 Correction: Bonds payable due 2008 2,160,000 – 250,000 + 224,000 + 830,000 + 970,000 = 3,934,000 980,000 + 108,000 + 720,000 = 1,808,000 (490,000 – 25,000) + (380,000 – 200,000) + (1,250,000 – 500,000) + 100,000 + 900,000 + 80,000 = 2,475,000 25,000 + 200,000 + 500,000 + 200,000 + 3,750,000 = 4,675,000 160,000 + 50,000 + 110,000 + 300,000 + 10,000 = 630,000 675,000 + (2,695,000 – 500,000) + 2,185,000 = 5,055,000 1,801,000 + (763,000 – 475,000) = 2,089,000 13,360,000 – 11,180,000 – 763,000 = 1,417,000; 1,417,000 + 3,350,000 = 4,767,000 1,000,000 + 1,500,000 + 25,000 = 2,525,000 500,000 + 550,000 – 250,000 = 800,000 + 1,000,000 + 250,000 + 450,000 = 2,500,000 150,000 + (2,100,000 – 500,000 – 80,000) + (1,600,000 – 200,000) (550,000 – 95,000) + 800,000 + (800,000 X 12% X 7/12) + 6,500 8,700,000 – (4,000,000 – 2,000,000 + 5,000,000 – 1,000,000) =2,700,000 175,000 + 136,000 + 820,000 + 153,000 + 366,000 = 1,650,000 250,000 + 140,000 + 228,000 + 248,000 = 866,000 525,000 – 400,000 + 300,000 + 1,020,000 + 1,2000,000 + 450,000 15 ... MC 13 C MC14 D MC15 B MC16 A MC17 C MC18 D MC19 C 14 98,000 P451,500 P MC 21 MC 22 MC 23 MC 24 MC 25 D C C A B MC10 B MC26 A MC27 MC28 MC29 MC30 B B D C MC31 B MC32 B MC 33 MC34 C A MC35 A MC36... warranties 36 7,000 Working capital 84,500 135 ,000 P3, 835 ,00 P3,105,000 3- 10 MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8 MC9 D A A C A C D D C P 136 ,000 217,500 P124,000 16,000 150,000 17,000 60,000 MULTIPLE CHOICE... depreciation Machinery Less accumulated depreciation Equipment Less accumulated depreciation Total • P320,000 195,000 P1,824,000 622,000 P 31 9,000 106,000 P 530 ,000 212,000 1,202,000 2 13, 000 31 8,000