Financial Accounting and Reporting

Unit 10-02


Nicolas, Resalyn Cae S.
2
nd
year Finance


Mr. Mark Anthony R. Casanova
Assessor

11 December 2013
Table of Contents
(D2) Must submit final assignment on or before December 11, 2013. ......................... 1
Prepare financial statements (balance sheet, income statement and statement of equity
for year 2012) from a trial balance, making appropriate adjustments. Prepare financial
statements in a form suitable for publication by the partnership. ..................................... 1
(M2) Must apply a method by preparing a worksheet to facilitate recording of
adjustments (Requirements 1, 3) ................................................................................. 4
Prepare financial statements (balance sheet, income statement and statement of
Equity) for year 2012 from incomplete records in a form suitable for publication by a sole
trader. ............................................................................................................................ 17
(D3) Must solve the problem by presenting the proper computation to support the
accrual basis amount from a cash basis amount. This is to be presented as a note to
the computed account balances (Requirement 2) ...................................................... 17
Prepare a consolidated balance sheet and profit and loss account for a simple group of
companies in a form suitable for publication by a corporation. ...................................... 25
(M2) Must apply a method by preparing a worksheet to facilitate recording of
adjustments (Requirements 1, 3) ............................................................................... 25
(M1) Describe the transactions that need adjustments and must make judgment about
the impact on the Total Assets, Total Liabilities, Total Equity, Net Income if identified
adjustments for the year ended December 31, 2012 are not recorded. (Requirement
1) ................................................................................................................................ 30
(D1) Must draw a conclusion about the accumulated misstatement in the income
statement if materiality level is 5% of Net Income before tax. (Requirement 1) ......... 39
Appendix ......................................................................................................................... A
(M3) Must show that an appropriate and structured approach in the preparation of
report has been used. The report presented in powerpoint should cover the nature of
adjustments and a summary of adjustments. (Requirement 1) .................................... A

1

(D2) Must submit final assignment on or before December 11, 2013.
Prepare financial statements (balance sheet, income statement and statement of equity
for year 2012) from a trial balance, making appropriate adjustments. Prepare financial
statements in a form suitable for publication by the partnership.



SAMICO TRADING
ADJUSTING JOURNAL ENTRIES

Date Account Titles and Description Ref Debit Credit
December 31 Cash 1 25,000
Accounts Payable 25,000

To record issued check last December 27, 2012 but was released on
January 7, 2013

31 Cash 2 130,000
Accounts Receivable 130,000

To record unrecorded collection from customers in
Paranaque City



31 Cash 3 60,000
Sales 60,000

To record sales report from Makati City for the last week of
December 2012



31 Accounts Receivable 4 30,000
Cash 30,000
To reverse post-dated check

31 Bank Charge 5 8,650
Cash 8,650
To record adjustments from bank charge

31 Cash 6 5,000
Other Income 5,000
To record other income earned on December 30, 2012

31 Allowance for Doubtful Accounts 7 115,000
Accounts Receivable 115,000
To record allowance for doubtful accounts

31 Doubtful Accounts Expense 8 66,970
Allowance for Doubtful Accounts 66,970
To record provisions on aging receivables

31 Interest Receivable 9 64,000
2

Interest Income 64,000

To record interest income from a note value dated Oct. 28 which earns
interest at 12% to Hi5 Company

31 Ending Inventory 10 2,257,000
Cost of Goods Sold 27,545,000
Beginning Inventory 3,302,000
Purchases 26,500,000
To record the inventory on hand as of December 31, 2012

31 Ending Inventory 11 250,000
Cost of Goods Sold 250,000
To record year-end inventory not included in the count

31 Purchases 12 125,000
Accounts Payable 125,000

Cost of Goods Sold 125,000
Purchases 125,000

To record related invoice of goods received from a vendor on
December 25, 2013


31 Insurance Expense 13 71,250
Prepayments 71,250

To record monthly prepayments used for car and office
insurance



31 Office Supplies Expense 14 20,400
Prepayments 20,400
To record the correct count of office supplies as of year-end

31 Rent Expense 15 300,000
Prepayments 300,000
To record monthly prepayments used for rent expense

31 Accumulated Depreciation - Furniture and Fixtures 16 4,000
Depreciation Expense - Furniture and Fixtures 4,000
To correct excess in depreciation expense

31 Transportation Equipment 17 500,000
Office Equipment 225,000
Mico, Capital 362,500
Sam, Capital 362,500
To record cash purchase of vehicle and five desktops from the additional investment by the partners

31 Depreciation Expense 18 82,917
Accumulated Depreciation - Transportation Equipment 41,667

To record depreciation expense of transportation
equipments



31 Depreciation Expense 19
Accumulated Depreciation - Office Equipment 41,250
3

To record depreciation expense of office equipments

31 Accounts Payable 20 120,000
Other Income 30,000
Unearned Revenue 90,000

To record received cash on October 1, 2012 from the launched promo service and recognize income for 3
months

31 Telephone Expense 21 61,650
Salaries 154,250
Accrued Expenses 215,900
To record accrued expenses

Total

32,346,087 32,346,087

4

(M2) Must apply a method by preparing a worksheet to facilitate recording of
adjustments (Requirements 1, 3)

SAMICO Trading
Worksheet
December 31, 2012
In Pesos

Unadjusted Adjustments Adjusted

Debit Credit Debit Credit Debit Credit
Cash

4,041,556

1

25,000



4,222,906


2

130,000




3

60,000






4

30,000




5

8,650


6

5,000


Accounts Receivable - trade

3,280,000



2

130,000

3,065,000


4

30,000






7

115,000
Allowance for doubtful accounts

126,000

7

115,000



77,970




8

66,970
Interest Receivable

9

64,000



64,000
Notes Receivable

3,000,000





3,000,000
Inventories

3,302,000

10

2,257,000



2,507,000




10

3,302,000


11

250,000


Prepayments

726,000



13

71,250

334,350




14

20,400




15

300,000
Office Equipment

1,500,000

17

225,000



1,725,000
Transportation Equipment

2,800,000

17

500,000



3,300,000
Furniture and Fixtures




5

1,200,000 1,200,000
Accumulated Depreciation - Office
Equipment

900,000



19

41,250

941,250
Accumulated Depreciation -
Transportation Equipment

1,400,000



18

41,667

1,441,667
Accumulated Depreciation -
Furniture and Fixtures

644,000

16

4,000



640,000
Accounts Payable

2,075,362



1

25,000

2,105,362




12

125,000


20

120,000


Unearned Revenue



20

90,000

90,000
Other Current Liabilities

351,000





351,000
Accrued Expenses



21

215,900

215,900
Capital, Mico Montenegro

6,000,000



17

362,500

6,362,500
Capital, Sam Westen

6,000,000



17

362,500

6,362,500
Drawings, Mico Montenegro

800,000





800,000
Drawings, Sam Westen

800,000





800,000
Sales

35,106,388



3

60,000

35,166,388
Interest Income



9

64,000

64,000
Other Income



6

5,000

35,000




20

30,000
Purchases

26,500,000



10

26,500,000

-


12

125,000






12

125,000
Cost of Sales

10

27,545,000



27,420,000




11

250,000


12

125,000


Salaries and Wages

2,173,000

21

154,250



2,327,250
SSS, PHIC, Pagibig

83,130





83,130
Taxes and license

62,544





62,544
Rent expense

150,000

15

300,000



450,000
Repair and Maintenance

145,000





145,000
6

Gasoline

124,520





124,520
Light, water & telephone

632,500

21

61,650



694,150
Representation and Entertainment

33,500





33,500
Depreciation Expense

1,104,000

19

41,250



1,182,917


18

41,667






16

4,000
Office Supplies Expense

110,000

14

20,400



130,400
Bank Charge

5

8,650



8,650
Doubtful Accounts Expense

8

66,970



66,970
Insurance Expense

13

71,250



71,250
Miscellaneous Expense

35,000





35,000
Total

52,602,750

52,602,750


32,346,087


32,346,087

53,853,537

53,853,537



7

SAMICO Trading
STATEMENT OF FINANCIAL POSITION

As of December 31, 2012


in Php
Assets Notes 2 0 1 2

Current assets

Cash



4,222,906

Trade and other receivables
1

6,051,030

Inventories

2,507,000
Prepayments

334,350
Total current assets 13,115,286

Non-current assets

Property and equipment

2

3,202,083
Total Non-current assets 3,202,083

Total Assets 16,317,369

Liabilities and Equity

Current Liabilities
Trade and other payables
3
2,762,262
Total Liabilities 2,762,262


Equity

Total Partners' Equity 4 13,555,107

Total Liabilities and Partners' Equity 16,317,369
See Accompanying Notes to Financial Statements -






8

SAMICO TRADING
STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2012


Notes

in Php
2 0 1 2



Revenue

4

35,265,388
Cost of Goods Sold
5
27,420,000
Gross Profit



7,845,388
Less: Operating Expenses
6
5,415,281
Net Income 2,430,107
See Accompanying Notes to Financial Statements


9

SAMICO TRADING
STATEMENT OF CHANGES IN PARTNERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2012

in Php
Sam Mico
Total

Capital, January 1

6,000,000 6,000,000 12,000,000
Additional Investments 362,500 362,500 725,000
Net Income

1,215,054 1,215,054 2,430,107
Less: Drawings 800,000 800,000 1,600,000
Capital, December 31 6,415,054 6,415,054 13,555,107

10

SAMICO Trading
Notes to Financial Statements

AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2012

1. TRADE AND OTHER RECEIVABLES

This content consist of:

in Php

2012
Accounts Receivable - trade

3,065,000
Less: Allowance for doubtful accounts

77,970
Notes Receivable

3,000,000
Interest Receivable

64,000
6,051,030

2. PROPERTY AND EQUIPMENT

This content consist of:

in Php

2012
Office Equipment

1,725,000
Transportation Equipment

3,300,000
Furniture and Fixtures

1,200,000
Less:

Accumulated Depreciation - Office Equipment

941,250
Accumulated Depreciation - Transportation Equipment

1,441,667
Accumulated Depreciation - Furniture and Fixtures

640,000
3,202,083

3. TRADE AND OTHER PAYABLES

This account consist of:

in Php

2012
Accounts Payable

2,105,362
Unearned Revenue

90,000
Accrued Revenue

215,900
Other Current Liabilities

351,000
2,762,262

4. EQUITY

This content consist of:

in Php

2012
Capital, January 1

12,000,000
Additional Investments

725,000
Net Income

2,430,107
Less: Drawings

1,600,000
13,555,107



11

5. REVENUE
This account consist of:


in Php

2012
Sales

35,166,388
Interest Income


64,000
Other Income


35,000
35,265,388



6. COST OF GOODS SOLD



This account consist of:


in Php

2012
Beginning Inventory


3,302,000
Purchases


26,625,000
Total Goods Available for Sale


29,927,000
Less: Ending Inventory


2,507,000
27,420,000



7. OPERATING EXPENSES



This account consist of:


in Php

2012
Salaries and Wages


2,327,250
Depreciation Expense


1,182,917
Light, water & telephone


694,150
Rent expense


450,000
Repair and Maintenance


145,000
Office Supplies Expense


130,400
Gasoline


124,520
SSS, PHIC, Pagibig


83,130
Insurance Expense


66,970
Doubtful Accounts Expenses


130,400
Taxes and license


62,544
Representation and Entertainment


33,500
Bank Charge


8,650
Miscellaneous Expense


35,000
5,474,431

12

SAMICO TRADING
STATEMENT OF FINANCIAL POSITION (UNADJUSTED)
AS OF DECEMBER 31, 2012
in Php
Assets Notes 2012

Current assets
Cash

4,041,556
Trade and other receivables 1 6,154,000
Inventories 3,302,000
Prepayments 726,000
Total current assets 14,223,556

Non-current assets
Property and equipment 2 2,556,000
Total Non-current assets 2,556,000

Total Assets 16,779,556

Liabilities and Equity

Current Liabilities
Trade and other payables 3 2,426,362
Total current liabilities 2,426,362
Total Liabilities 2,426,362


Equity
Total Partners' Equity 14,353,194

Total Liabilities and Partners' Equity 16,779,556
See Accompanying Notes to Financial Statements -

13

SAMICO TRADING
STATEMENT OF INCOME (UNADJUSTED)
FOR THE YEAR ENDED DECEMBER 31, 2012
in Php
Notes 2012


Revenue 4 35,106,388
Cost of Goods Sold
5
26,500,000
Gross Profit 8,606,388
Less: Operating Expenses 6 4,653,194
Net Income 3,953,194

See Accompanying Notes to Financial Statements

14

SAMICO TRADING
STATEMENT OF CHANGES IN EQUITY (UNADJUSTED)
FOR THE YEAR ENDED DECEMBER 31, 2012
in Php
2 0 1 2

Sam Mico Total
Capital, January 1, 2012 6,000,000 6,000,000 12,000,000
Net Income 1,976,597 1,976,597 3,953,194
Less: Drawing 800,000 800,000 1,600,000
Total Partners' Equity 7,176,597 7,176,597 14,353,194

15

SAMICO Trading
Notes to Financial Statements (Unadjusted)

AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2012

1. TRADE AND OTHER RECEIVABLES

This account consist of:

in Php

2012
Accounts Receivable - trade

3,280,000
Less: Allowance for doubtful accounts

126,000
Notes Receivable

3,000,000
6,154,000

2. PROPERTY AND EQUIPMENT

This account consist of:

in Php

2012
Office Equipment

1,500,000
Transportation Equipment

2,800,000
Furniture and Fixtures

1,200,000
Less:

Accumulated Depreciation - Office Equipment

900,000
Accumulated Depreciation - Transportation Equipment

1,400,000
Accumulated Depreciation - Furniture and Fixtures

644,000
2,556,000

3. TRADE AND OTHER PAYABLES

This account consist of:

in Php

2012
Accounts Payable

2,075,362
Other Current Liabilities

351,000
2,426,362

4. REVENUE


This account consist of:


in Php

2012
Sales

35,106,388
35,106,388













16

5. COST OF GOODS SOLD



This account consist of:


in Php

2012
Beginning Inventory


3,302,000
Purchases


26,500,000
Less: Ending Inventory


3,302,000
26,500,000



6. OPERATING EXPENSES



This account consist of:


in Php

2012
Salaries and Wages


2,173,000
Depreciation Expense


1,104,000
Light, water & telephone


632,500
Rent expense


150,000
Repair and Maintenance


145,000
Gasoline


124,520
Office Supplies Expense


110,000
SSS, PHIC, Pagibig


83,130
Taxes and license


62,544
Representation and Entertainment


33,500
Miscellaneous Expense


35,000
4,653,194











17

Prepare financial statements (balance sheet, income statement and statement of Equity)
for year 2012 from incomplete records in a form suitable for publication by a sole trader.
(D3) Must solve the problem by presenting the proper computation to support the
accrual basis amount from a cash basis amount. This is to be presented as a note to the
computed account balances (Requirement 2)

BRUNO EARTH TRADING
SCHEDULE OF COMPUTATIONS


Computation for Net Income


Beginning Capital

498,165.00
Add: Net Income

140,385.00
Less: Drawing 168,000.00
Ending Capital 470,550.00

Schedule 1: Computation of Gross Sales
Cash Sales

369,000.00
Sales on Account

Accounts Receivable, December 31 96,000.00

Notes Receivable, December 31 15,000.00

Collection on Accounts Receivable 468,750.00

Collection on Notes Receivables 52,500.00

Sales Discount 2,250.00

Accounts Written-Off 600.00
Total 635,100.00

Accounts Receivable, January 1 129,000.00

Notes Receivable, January 1 30,000.00 476,100.00
Total Sales 845,100.00

Schedule 2: Computation of Gross Purchases
Cash Purchases

228,750.00
Purchase on Account

Accounts Payable, December 31 96,000.00

Notes Payable, December 31 18,000.00

Payment on Accounts Payable 346,650.00

Payment on Notes Payable 45,000.00

Purchase Discount Taken 1,500.00

Purchase Returns 1,050.00
Total 508,200.00

18

Accounts Payable, January 1 87,000.00

Notes Payable, January 1 13,500.00 407,700.00
Total Purchases 636,450.00

Schedule 3: Computation of Taxes
Payment of Taxes during 2012

40,500.00
Add: Accrued Taxes, December 31 21,000.00
Total

61,500.00
Less: Accrued Taxes, January 1

18,000.00
Taxes Incurred during 2012 43,500.00

Schedule 4: Computation of Utilities
Payment of Utility Expense

18,000.00
Add: Accrued Utilities, December 31

690.00
Utilities Incurred during 2012 18,690.00

Schedule 5: Computation of Rent
Payment of Rent during 2012

19,800.00
Add: Prepaid Rent, January 1 3,600.00
Total

23,400.00
Less: Prepaid Rent, December 31

5,400.00
Rent Incurred during 2012 18,000.00

Schedule 6: Computation of Depreciation
Office Equipment, January 1

112,500.00
Add: New Equipment Acquired in 2012 18,000.00
Total

130,500.00
Less: Net Book Value of Equipment Sold in 2012 7,500.00

Office Equipment, December 31 114,000.00 121,500.00
Depreciation during 2012 9,000.00

Schedule 7: Computation of Supplies Used
Payment of Supplies during 2012

7,200.00
Add: Unused Supplies, January 1 1,200.00
Total

8,400.00
Less: Unused Supplies, December 31

1,800.00
Supplies Used 6,600.00

Schedule 8: Computation of Commission Revenue
Receipt of commission Revenue during 2012

48,000.00
Add: Accrued Commission Revenue, December 31 2,250.00
Total

50,250.00
19

Less: Accrued Commission Revenue, January 1

3,150.00
Commission Revenue Earned during 2012 47,100.00

Schedule 9: Computation of Interest Revenue
Receipt of Interest Revenue during 2012

375.00
Add: Unearned Interest Revenue, January 1 150.00
Total

525.00
Less: Unearned Interest Revenue, December 31

75.00
Interest Revenue Earned during 2012 450.00

Schedule 10: Computation of Interest Expense
Payment of Interest Expense in 2012

750.00
Add: Accrued Interest 360.00
Total

1,110.00
Less: Accrued Interest Expense, January 1

135.00
Interest Expense Incurred during 2012 975.00

Schedule 11: Computation of Loss on Sale of Equipment
Original Cost of the Equipment Sold

15,000.00
Less: Accumulated Depreciation as of the Date of Sale 7,500.00
Net Book Value as of the Date of Sale

7,500.00
Less: Proceeds from Sale of Equipment

6,750.00
Loss on Sale of Equipment 750.00

20

BRUNO EARTH TRADING
STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2012


in Php
Assets Notes 2 0 1 2

Current assets
Cash







1




99,225
113,250
273,000
7,200
Trade and other receivables
Inventories
Prepayments
Total current assets 492,675

Non-current assets
Property and equipment

2

114,000
Total Non-current assets 114,000

Total Assets 606,675

Liabilities and Equity

Current Liabilities
Trade and other payables

3

136,125
Total current liabilities 136,125
Total Liabilities 136,125


Equity
Total Stockholders' Equity 4 470,550

Total Liabilities and Stockholders' Equity 606,675
See Accompanying Notes to Financial Statements

21

BRUNO EARTH TRADING
STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2012


Notes

in Php
2 0 1 2


Revenue
4
890,400.00
Cost of Goods Sold
5
590,400.00
Gross Profit

300,000.00
Less: Operating Expenses

6

159,615.00
Net Income 140,385.00
See Accompanying Notes to Financial Statements




22

BRUNO EARTH TRADING

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2012



in Php
2 0 1 2

Capital, Diego, January 1

498,165.00
Net Income

140,385.00
Less: Drawings

168,000.00
Capital, Diego, December 31 470,550.00



23

BRUNO EARTH TRADING
Notes to Financial Statements

AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2012

1. TRADE AND OTHER RECEIVABLES

This account consist of:

Schedule

in Php

2012
Accounts Receivable

3,065,000
Notes Receivable

77,970
Accrued Commission Revenue

3,000,000

6,142,970

2. PROPERTY AND EQUIPMENT

This account consist of:

in Php

2012
Office Equipment

114,000

114,000

3. TRADE AND OTHER PAYABLES

This account consist of:

in Php

2012
Accounts Payable

96,000
Notes Payable

18,000
Accrued Interest Expense

360
Accrued Taxes

21,000
Accrued Utility Expense

690
Unearned Interest Revenue

75
136,125

4. EQUITY

This account consist of:

in Php

2012
Diego, Capital, January 1

498,165
Net Income

140,385
Less: Drawings

168,000

470,550








24

5. REVENUE


This account consist of:


in Php

2012
Sales

1

845,100.00
Less: Sales Discount

2,250.00
Commission Revenue

47,100.00
Interest Revenue

450.00

890,400



6. COST OF GOODS SOLD



This account consist of:


in Php

2012
Beginning Inventory

229,500
Purchases

2

636,450
Less: Purchases Discount

1,500
Purchases Returns

1,050
Total Goods Available for Sale

863,400
Less: Ending Inventory

273,000

590,400



7. OPERATING EXPENSES



This account consist of:


in Php

2012
Taxes expense

3

43,500
Salaries expense

36,000
Utilities expense

4

18,690
Rent expense

18,000
Depreciation expense

9,000
Loss on sale of equipment

6,750
Supplies expense

6,600
Interest expense

975
Accounts written-off

600
Miscellaneous expense

25,500

165,615





25

Prepare a consolidated balance sheet and profit and loss account for a simple group of
companies in a form suitable for publication by a corporation.
(M2) Must apply a method by preparing a worksheet to facilitate recording of
adjustments (Requirements 1, 3)

KING CORPORATION AND SUBSIDIARY
ELIMINATING ENTRIES



KING
Corporation
QUEEN
Corporation
Eliminations
Consolidated
Debit Credit
Sales

600,000.00

300,000.00

900,000.00
Dividend Income

45,000.00

45,000.00
Total Revenue

645,000.00

300,000.00

900,000.00
Cost of Goods Sold

255,000.00

172,500.00

427,500.00
Gross Profit

390,000.00

127,500.00

472,500.00
Operating Expenses

75,000.00

30,000.00

105,000.00
Other Expenses

60,000.00

22,500.00

82,500.00
Net Income

255,000.00

75,000.00

285,000.00

Statement of Retained
Earnings
Retained Earnings, January 1
King Corp.

450,000.00

450,000.00
Queen Corp.

150,000.00

150,000.00
Net Income

255,000.00

75,000.00

285,000.00
Dividends Declared
King Corp.

90,000.00

90,000.00
Queen Corp.

45,000.00

45,000.00
Retained Earnings,
December 31

615,000.00

180,000.00

645,000.00
26


Cash

315,000.00

112,500.00

427,500.00
Accounts Receivable

112,500.00

75,000.00

187,500.00
Inventory

150,000.00

112,500.00

262,500.00
Property and Equipment Net

787,500.00

480,000.00

1,267,500.00
Investment in Queen Corp.

450,000.00

450,000.00
Total Assets

1,815,000.00

780,000.00

2,145,000.00

Accounts Payable

150,000.00

150,000.00

300,000.00
Loans Payable

300,000.00

150,000.00

450,000.00
Common Stock
King Corp.

750,000.00

750,000.00
Queen Corp.

300,000.00

300,000.00
Retained Earnings

615,000.00

180,000.00

645,000.00
Total Liabilities and Equity

1,815,000.00

780,000.00

2,145,000.00


27

KING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2013


in Php
Assets 2 0 1 2

Current assets
Cash



427,500.00
Trade and other receivables

187,500.00
Inventories

262,500.00
Total current assets 877,500.00

Non-current assets
Property and equipment

1,267,500.00
Total Non-current assets 1,267,500.00

Total Assets 2,145,000.00

Liabilities and Equity

Current Liabilities
Trade and other payables

300,000.00
Total current liabilities 300,000.00
Non-Current Liabilities

Loans Payable

450,000.00
Total non-current liabilities 450,000.00
Total Liabilities 750,000.00


Equity
Common Stock

750,000.00
Retained Earnings

645,000.00
Total Stockholders' Equity 1,395,000.00

Total Liabilities and Stockholders' Equity 2,145,000.00
See Accompanying Notes to Financial Statements

28

KING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2013

in Php
2 0 1 3


Revenue

900,000
Cost of Goods Sold 427,500
Gross Profit

472,500
Less: Operating Expenses

Operating expenses

105,000
Other expenses

82,500
Net Income 285,000
See Accompanying Notes to Financial Statements

29

KING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2013


in Php
2 0 1 2

Common Stock

750,000
Retained Earnings, January 1

450,000

Net Income

285,000

Dividends Declared

90,000

Retained Earnings, December 31 645,000
Total Stockholders' Equity 1,395,000

30

(M1) Describe the transactions that need adjustments and must make judgment about
the impact on the Total Assets, Total Liabilities, Total Equity, Net Income if identified
adjustments for the year ended December 31, 2012 are not recorded. (Requirement 1)

There were transactions that SAMICO Trading made for the year end December 31, 2012, but
there were some adjustments that need to be noted and adjusted. These transactions are:
1. A check worth of P25,000 issued on December 27, 2012 that was supposed to be paid
to a supplier was only released during January 7, 2013. The original entry made was:
Dec. 27 Accounts Payable

25,000


Cash

25,000

This entry means that SAMICO Trading seems to have recorded the transaction as if
cash from the company was deducted but what the transaction is supposed to mean is
that the company has a payable to a supplier, although check was issued on December
7, 2012, still it was not released therefore no money went out yet from the company and
that there is still liability. Therefore, adjustments should be made. The adjusted entry
made is:
Dec. 31 Cash

25,000


Accounts Payable

25,000

2. A deposited payment of customers in Paranaque City worth P130,000 was not recorded
in the trial balance, therefore, the companys accounts receivable is overstated, while the
cash account is understated. Having said, adjustments should be made. The adjusting
entry is:
Dec. 31 Cash

130,000


Accounts Receivable 130,000

3. An amount of P60,000 from sales from Makati City for the last week of December 2012
was deposited to the account of SAMICO Trading but was not recorded in the books
resulting to understatement of the companys cash and sales. Therefore, adjustments
should be made. The adjusting entry is:
31

Dec. 31 Cash

60,000


Sales

60,000



4. A post-dated check amounting to P30,000 was given by a customer dated on January
20, 2013 but was already recorded to be part of sales. Since it is a post-dated check, no
cash were received yet; but in the original entry made, it was recorded as if the company
already received cash:

Therefore, entry made should be reverse. Since no cash was received yet, therefore, it
should be recorded only be recorded a receivable. To reduce the amount of cash, it
should be reversed and be changed into accounts receivable. The adjusting entry is:
Dec. 31 Accounts Receivable 30,000


Cash

30,000


5. Bank made charges to SAMICO Trading amounting to P8,650 which is not yet reflected
in the trial balance, therefore, adjustments are made. Since SAMICO Trading has the
obligation of paying these charges, there will be a decrease in the companys cash
account. The adjusting entry is:
Dec. 31 Bank Charge

8,650


Cash

8,650


6. Income earned on December 30, 2012 amounting to P5,000 was not recorded on year
ends trial balance, instead, it was recorded on January 3, 2013. Therefore, resulting to
an understated account for cash. The adjusting entry is:
Dec. 31 Cash

5,000


Other Income

5,000



Dec. 20 Cash

30,000


Sales

30,000



32

7. Within one year, various receivables are still not collected and among these receivables
are five accounts amounting to P115,000 that has a high possibility of being not collected
anymore, therefore, this has to be written-off. SAMICO Trading should set specific
amounts that they could use as allowance for doubtful accounts such as the five
accounts. Having said, this lowers the chances of SAMICO Trading of collecting
accounts receivables. The adjusting entry is:
Dec. 31 Allowance for Doubtful Accounts

115,000


Accounts Receivables

115,000



8. Allowances for doubtful accounts should always be provided depending on the aging of
receivables. For current doubtful accounts, 1% should be for allowances, 2% for over 3
to 6 months, 5% for over 6 months to 1 year, and lastly, 10% for doubtful account for
over 1 year. Having said, the adjusting entry is:
CURRENT: 1,777,000 - 130,000 + 30,000

= 1,677,000

X 1%

=

16,770
3-6 MONTHS:

= 650,000

X 2%

=

13,000
6-12
MONTHS:

= 512,000

X 5%

=

25,600
> 1 YEAR: 341,000 - 115,000

= 226,000

X 10%

=

22,600
3,065,000

77,970

ALLOWANCE:
126,000 -
115,000

=
110,000
66,970


77,970

Dec. 31 Doubtful Accounts Expenses

66,970


Allowance for Doubtful Accounts

66,970




9. Amount of P3,000,000 was lent out to Hi5 Company supported with a note value dated
on October 28, 2012. As it matures after 90 days, this earns an interest rate of 12% per
33

annum. Therefore, this indicates that there will be income coming from this interest at the
same time, an increase in interest receivable. Having said, the adjusting entry is:
3,000,000

X
12%

X
64
360

=
64,000

Dec. 31 Interest Receivable

64,000


Interest Income

64,000


10. In the original trial balance, it shows that there is an inventory of P3,302,000 but it
appears that by the end of the year, the inventory on hand is only P2,257,000. Therefore,
the adjusting entry is:
Dec. 31 Ending Inventory


2,257,000


Cost of Sales


27,545,000


Beginning Inventory


3,302,000

Purchase


26,500,000


11. There were unrecorded inventories from a customer which are on consignment, meaning
that it is as if you are letting your customer to sell your product without being paid yet.
Therefore, these goods are still considered to be part of the companys inventories.
Having said, the adjusting entry is:
Dec. 31 Inventory


250,000


Cost of Sales


250,000


12. By December 25, 2013, goods worth of P125,000 were received from a vendor which
was added to the companys inventory. Because SAMICO Trading purchased from the
vendor, this increases its accounts payable as well as purchases. However, because the
copy of receiving report was not forwarded to the accounting department, related invoice
of these goods were unrecorded. Therefore, the adjusting entry is:
Dec. 31 Purchases


125,000

34


Accounts Payable


125,000

Cost of Sales


125,000


Purchases


125,000


13. SAMICO Trading purchased a 2 non-life policies which covers one year upon premium
payment date. The company paid for its car insurance on September 1, 2012 for
P135,000 while for the fire insurance was paid on October 1, 2012 for P105,000. Since
this is for a year, dividing each premium payment by 12 months and multiplying it to the
number of months consumed. The entry made for this is:
INSURANCE
MONTHS
EXPIRED

1-Sep CAR 135,000 4 = 45,000
1-Oct FIRE 105,000 3 = 26,250
240,000 71,250

Dec. 31 Insurance Expense


71,250


Prepayment


71,250


14. In the general ledger, it is recorded that there is P36,000 office supplies, but it appears
that by the end of the year, there is only P15,600 left. Meaning, that P20,400 were used
and must be recorded as an expense. Therefore, the adjusting entry is:
Dec. 31 Office Supplies


20,400


Prepayment


20,400


15. An annual rent expense of SAMICO Trading was paid on April 30, 2012 amounting to
P450,000. Originally, SAMICO Trading recorded this transaction showing that there is an
increase in prepayment and decrease in the amount of cash. The entry made was:

35

Apr. 30 Prepayment 450,000


Cash

450,000

In this transaction, it shows that the rent has expired for the past eight months, therefore,
it is then considered as an expense. On the other hand, there is a decrease in
prepayment since the company was able to use the space for the said months.
Therefore, the adjusting entry is:
450,000 x
8
12 = 300,000




Dec. 31




Rent Expense





300,000


Prepayment


300,000


16. SAMICO Trading purchased furniture and fixtures amounting to P200,000 on January 1,
2012. The estimated useful life of these are five years, therefore, dividing the cost of the
furniture and fixtures to its estimated useful life will result to P40,000 a year. However, it
was recorded that P44,000 was its depreciation expense, meaning that depreciation
expenses is overstated of P4,000. Having said so, adjustments are to be done.

200,000 / 5 = 40,000
44,000 - 40,000 = 4,000

Dec. 31 Accumulated Depreciation - Furniture & Fixtures


4,000


Depreciation Expense


4,000


17. There is an unrecorded purchase of vehicle and five desktops with amounts P500,000
and P225,000. The money used was an additional investment by partners Sam and
Mico. Given that the equipment increased by P725,000; hence, since partners agree on
36

50%-50%, therefore each has an equal contribution resulting to an increase in equity as
well.
Dec. 31 Transportation Equipment


500,000


Office Equipment


225,000


Sam, Capital


362,500

Mico, Capital


362,500


18. Purchasing transportation on July 18, 2012 and office equipment on February 10, 2012
on a cash basis, both having five years of estimated useful life. Similar to entry made
above, dividing the cost of the equipment to its estimated useful life will give the amount
each depreciates for a year.
TRANSPORTATION 500,000

/
5

X
5
12

=
41,667
OFFICE
EQUIPMENT
225,000

/
5

X
11
12

=
41,250

Dec. 31 Depreciation Expense


82,917


Accumulated Depreciation - Transportation


41,667

Accumulated Depreciation - Office Equipment


41,250


19. SAMICO Trading launched a promo which covers a year. By October 1, 2012, the
company was able to receive P120,000 from the operations during promo and annually
receiving P7,500 from customers who took advantage of the promo. However, P120,000
was booked as Accounts Payable of SAMICO Trading. The entry made is:
Oct. 1
Cash 120,000


Accounts Payable

120,000

The entry made should be corrected by revising the accounts payable and reclass to
unearned revenue. Moreover, other income should be recognized for the 3 months in
which SAMICO has already earned. Therefore, the adjusting entry is:
37

Dec. 31 Accounts Payable


120,000


Other Income


30,000

Unearned Revenue


90,000


20. SAMICO Trading encountered accrued payments or expenses within the year that were
not accrued or recorded at the year-end. There should have been an increase in the
companys expense and the liability to pay. Therefore, the adjusting entry is:
Dec. 31 Telephone Expense


6,650


Salaries


154,250


Accrued Expenses


215,900

If these adjustments are not recorded, the impact in the total assets, total liabilities, total
equity, and net income are as follows:


38


IMPACT ON TOTAL ASSETS, LIABILITIES, EQUITY AND NET INCOME

Unadjusted Adjusted Difference
Total Assets 16,779,556 16,317,369 462,187 overstated
Total Liabilities 2,426,362 2,762,262 335,900 understated
Capital 10,400,000 11,125,000 725,000 understated
Net Income 3,953,194 2,430,107 1,523,087 overstated
Total Equity 14,353,194 13,555,107 798,087 overstated
*Note: Total Equity = Capital + Net Income




39

(D1) Must draw a conclusion about the accumulated misstatement in the income
statement if materiality level is 5% of Net Income before tax. (Requirement 1)

Comparing the impact of net income from unadjusted and adjusted financial statements, it is
clearly stated that income statement would have been materially misstated if adjustments were
not made. Computing the accumulated misstatement incurred results to overstatement of
P1,523,087 in net income which exceeds the 5% materiality threshold of P197,660 which is the
5% of the unadjusted net income P3,953,194.
A

Appendix
(M3) Must show that an appropriate and structured approach in the preparation of report
has been used. The report presented in powerpoint should cover the nature of
adjustments and a summary of adjustments. (Requirement 1)





















B



C


D


E


F


G


H


I


J


K



























L

SAMICO TRADING
ADJUSTMENTS
Total Assets Total Liabilities
Total
Equity
Ref Explanation Adjusting Entries Capital Net Income
DR/(CR) DR/(CR) DR/(CR) DR/(CR)
1
To record issued check last December
27, 2012 but was released on January
7, 2013
Cash


25,000
Accounts Payable


(25,000)
2
To record unrecorded collection from
customers in Paranaque City
Cash


130,000
Accounts Receivables (130,000)
3
To record sales report from Makati City
for the last week of December 2012
Cash


60,000
Sales


(60,000)
4
To reverse post-dated check
Accounts Receivable


30,000
Cash


(30,000)
5
To record adjustments from bank
charge
Bank Charge


8,650
Cash


(8,650)
6 To record other income earned on
December 30, 2012
Cash 5,000
Other Income


(5,000)
7
To record allowance for doubtful
accounts
Allowance for Doubtful Accounts


115,000
Accounts Receivables (115,000)
8
To record provisions on aging
receivables
Doubtful Accounts Expenses


66,970

Allowance for Doubtful
Accounts

(66,970)
M

9
To record interest income from a note
value dated Oct. 28 which earns
interest at 12%
Interest Receivable


64,000
Interest Income


(64,000)
10 To record the inventory on hand as of
December 31, 2012
Ending Inventory 2,257,000
Cost of Sales 27,545,000
Beginning Inventory (3,302,000)
Purchase (26,500,000)
11
To record goods that are on
consignment year-end inventory not
included in the count
Inventory


250,000
Cost of Sales


(250,000)
12 To record related invoice of goods
received from a vendor on December
25, 2013
Purchases 125,000
Accounts Payable


(125,000)

Cost of Sales 125,000
Purchases


(125,000)
13
To record monthly prepayments used
for car and office insurance
Insurance Expense


71,250
Prepayment


(71,250)
14
To record the correct count of office
supplies as of year-end
Office Supplies Expenses


20,400
Prepayment


(20,400)
15 To record monthly prepayments used
for rent expense
Rent Expense 300,000
Prepayment (300,000)
16
To record excess in depreciation
expense
Accumulated Depreciation -
Furnitures & Fixtures 4,000
Depreciation Expense


(4,000)
17 To record cash purchase of vehicle and Transportation Equipment
N

five desktops from the additional
investment by the partners
500,000
Office Equipment


225,000
Mico, Capital (362,500)
Sam, Capital (362,500)
18
To record depreciation expense of
transportation equipments
Depreciation Expense


41,667

Accumulated Depreciation -
Transportation Equipment


(41,667)
19
To record depreciation expense of
office equipments
Depreciation Expense


41,250

Accumulated Depreciation -
Office Equipment


(41,250)
20
To record received cash on Oct. 1, 2012
from the launched promo service and
recognize income for 3 months
Accounts Payable


120,000
Other Income


(30,000)
Unearned Revenue


(90,000)
21
To record accrued expenses
Telephone Expense


61,650
Salaries 154,250
Accrued Expenses


(215,900)

Total Impact

(462,187)

(335,900) (725,000)

1,523,087