2nd paper (3)
DESCRIPTION
2nd paper (3)TRANSCRIPT
Financial Accounting and Reporting
Unit 10-02
Nicolas, Resalyn Cae S.
2nd 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
3
(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 TRADINGADJUSTING JOURNAL ENTRIES
Date Account Titles and Description Ref Debit CreditDecember 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
1
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
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
2
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
31Accumulated Depreciation - Furniture and Fixtures 16
4,000Depreciation 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
To record depreciation expense of office equipments
31 Accounts Payable 20 120,000
3
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 TradingWorksheet
December 31, 2012In Pesos
Unadjusted Adjustments AdjustedDebit 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
2
5
14 0,400 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 1,200,000
1,200,000
Accumulated Depreciation - Office Equipment
900,000
19
41,250
941,250
Accumulated Depreciation - Transportation Equipment
1,400,00
0
18
41,667
1,441,667
Accumulated Depreciation - Furniture and Fixtures
644,000
16
4,000
640,000
Accounts Payable
2,075,36
2 1 2
5,000 2,10
5,362 12
125,000
20
120,000
Unearned Revenue
20
90,000
90,000
Other Current Liabilities
351,000 35
1,000
Accrued Expenses
21
215,900
215,900
Capital, Mico Montenegro
6,000,00
0
17
362,500
6,362,500
Capital, Sam Westen
6,000,00
0
17
362,500
6,362,500
Drawings, Mico Montenegro
800,000
800,000
Drawings, Sam Westen 800,000
800,000
Sales
35,106,38
8 3 6
0,000 35,16
6,388
Interest Income 9
64,000
64,000
6
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 8
3,130
Taxes and license
62,544 6
2,544
Rent expense 150,000
15
300,000
450,000
Repair and Maintenance 145,000
145,000
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
1
20,400
130,400
7
4
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 3
5,000
Total 52
,602,750
52,602,7
50 32,34
6,087 32,34
6,087 53,85
3,537 53,85
3,537
8
SAMICO TradingSTATEMENT OF FINANCIAL POSITIONAs of December 31, 2012
in PhpAssets 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 assetsProperty and equipment
2
3,202,083
Total Non-current assets 3,202,083
Total Assets 16,317,369
Liabilities and Equity
Current LiabilitiesTrade and other payables
3
2,762,262
Total Liabilities 2,762,262
EquityTotal Partners' Equity
4
13,555,107
Total Liabilities and Partners' Equity
16,317,369
See Accompanying Notes to Financial Statements
-
9
SAMICO TRADINGSTATEMENT OF INCOMEFOR THE YEAR ENDED DECEMBER 31, 2012
Notes in Php2 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
10
SAMICO TRADINGSTATEMENT OF CHANGES IN PARTNERS' EQUITYFOR THE YEAR ENDED DECEMBER 31, 2012
in PhpSam Mico Total
Capital, January 1 6,000,000 6,000,000 12,000,000Additional Investments 362,500 362,500 725,000Net Income 1,215,054 1,215,054 2,430,107Less: Drawings 800,000 800,000 1,600,000Capital, December 31 6,415,054 6,415,054 13,555,107
11
SAMICO TradingNotes to Financial StatementsAS OF AND FOR THE YEAR ENDED DECEMBER 31, 2012
1. TRADE AND OTHER RECEIVABLESThis content consist of: in Php
2012
Accounts Receivable - trade 3,065,00
0
Less: Allowance for doubtful accounts 77,97
0
Notes Receivable 3,000,00
0
Interest Receivable 64,00
0 6,051,03
0
2. PROPERTY AND EQUIPMENTThis content consist of: in Php
2012
Office Equipment 1,725,00
0
Transportation Equipment 3,300,00
0
Furniture and Fixtures 1,200,00
0 Less:
Accumulated Depreciation - Office Equipment 941,25
0
Accumulated Depreciation - Transportation Equipment 1,441,66
7
Accumulated Depreciation - Furniture and Fixtures 640,00
0 3,202,08
3
3. TRADE AND OTHER PAYABLESThis account consist of: in Php
2012
Accounts Payable 2,105,36
2
Unearned Revenue 90,00
0
Accrued Revenue 215,90
0
Other Current Liabilities 351,00
0 2,762,26
2
4. EQUITY
12
This content consist of: in Php2012
Capital, January 1 12,000,00
0
Additional Investments 725,00
0
Net Income 2,430,10
7
Less: Drawings 1,600,00
0 13,555,10
7
5. REVENUEThis account consist of: in Php
2012
Sales 35,166,38
8
Interest Income 64,00
0
Other Income 35,00
0 35,265,38
8
6. COST OF GOODS SOLDThis 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 EXPENSESThis 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
13
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
14
SAMICO TRADINGSTATEMENT OF FINANCIAL POSITION (UNADJUSTED)AS OF DECEMBER 31, 2012
in Php
Assets Note
s 2012
Current assetsCash 4,041,556Trade and other receivables 1 6,154,000Inventories 3,302,000Prepayments 726,000
Total current assets 14,223,556
Non-current assetsProperty and equipment 2 2,556,000
Total Non-current assets 2,556,000
Total Assets 16,779,556
Liabilities and Equity
Current LiabilitiesTrade and other payables 3 2,426,362
Total current liabilities 2,426,362Total Liabilities 2,426,362
EquityTotal Partners' Equity 14,353,194
Total Liabilities and Partners' Equity 16,779,556
See Accompanying Notes to Financial Statements -
15
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
16
SAMICO TRADINGSTATEMENT OF CHANGES IN EQUITY (UNADJUSTED)FOR THE YEAR ENDED DECEMBER 31, 2012
in Php2 0 1 2
Sam Mico TotalCapital, January 1, 2012 6,000,000 6,000,000 12,000,000Net Income 1,976,597 1,976,597 3,953,194Less: Drawing 800,000 800,000 1,600,000Total Partners' Equity 7,176,597 7,176,597 14,353,194
17
SAMICO TradingNotes to Financial Statements (Unadjusted)AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2012
1. TRADE AND OTHER RECEIVABLESThis account consist of: in Php
2012
Accounts Receivable - trade 3,280,00
0
Less: Allowance for doubtful accounts 126,00
0
Notes Receivable 3,000,00
0 6,154,00
0
2. PROPERTY AND EQUIPMENTThis account consist of: in Php
2012
Office Equipment 1,500,00
0
Transportation Equipment 2,800,00
0
Furniture and Fixtures 1,200,00
0 Less:
Accumulated Depreciation - Office Equipment 900,00
0
Accumulated Depreciation - Transportation Equipment 1,400,00
0
Accumulated Depreciation - Furniture and Fixtures 644,00
0 2,556,00
0
3. TRADE AND OTHER PAYABLESThis account consist of: in Php
2012
Accounts Payable 2,075,36
2
Other Current Liabilities 351,00
0 2,426,36
2
4. REVENUEThis account consist of: in Php
2012
Sales 35,106,38
8 35,106,38
18
8
5. COST OF GOODS SOLDThis account consist of: in Php
2012
Beginning Inventory 3,302,00
0
Purchases 26,500,00
0
Less: Ending Inventory 3,302,00
0 26,500,00
0
6. OPERATING EXPENSESThis account consist of: in Php
2012
Salaries and Wages 2,173,00
0
Depreciation Expense 1,104,00
0
Light, water & telephone 632,50
0
Rent expense 150,00
0
Repair and Maintenance 145,00
0
Gasoline 124,52
0
Office Supplies Expense 110,00
0
SSS, PHIC, Pagibig 83,13
0
Taxes and license 62,54
4
Representation and Entertainment 33,50
0
Miscellaneous Expense 35,00
0 4,653,19
4
19
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 TRADINGSCHEDULE OF COMPUTATIONS
Computation for Net Income
Beginning Capital 498,165.00Add: Net Income 140,385.00Less: Drawing 168,000.00Ending Capital 470,550.00
Schedule 1: Computation of Gross SalesCash Sales 369,000.00Sales 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
20
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 30,000.00 476,100.00Total Sales 845,100.00
Schedule 2: Computation of Gross PurchasesCash Purchases 228,750.00Purchase 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 Accounts Payable, January 1 87,000.00 Notes Payable, January 1 13,500.00 407,700.00Total Purchases 636,450.00
Schedule 3: Computation of TaxesPayment of Taxes during 2012 40,500.00Add: Accrued Taxes, December 31 21,000.00Total 61,500.00Less: Accrued Taxes, January 1 18,000.00Taxes Incurred during 2012 43,500.00
Schedule 4: Computation of UtilitiesPayment of Utility Expense 18,000.00Add: Accrued Utilities, December 31 690.00Utilities Incurred during 2012 18,690.00
Schedule 5: Computation of RentPayment of Rent during 2012 19,800.00Add: Prepaid Rent, January 1 3,600.00Total 23,400.00Less: Prepaid Rent, December 31 5,400.00Rent Incurred during 2012 18,000.00
Schedule 6: Computation of DepreciationOffice Equipment, January 1 112,500.00Add: New Equipment Acquired in 2012 18,000.00Total 130,500.00
21
Less: Net Book Value of Equipment Sold in 2012 7,500.00 Office Equipment, December 31 114,000.00 121,500.00Depreciation during 2012 9,000.00
Schedule 7: Computation of Supplies UsedPayment of Supplies during 2012 7,200.00Add: Unused Supplies, January 1 1,200.00Total 8,400.00Less: Unused Supplies, December 31 1,800.00Supplies Used 6,600.00
Schedule 8: Computation of Commission RevenueReceipt of commission Revenue during 2012 48,000.00Add: Accrued Commission Revenue, December 31 2,250.00Total 50,250.00Less: Accrued Commission Revenue, January 1 3,150.00Commission Revenue Earned during 2012 47,100.00
Schedule 9: Computation of Interest RevenueReceipt of Interest Revenue during 2012 375.00Add: Unearned Interest Revenue, January 1 150.00Total 525.00Less: Unearned Interest Revenue, December 31 75.00Interest Revenue Earned during 2012 450.00
Schedule 10: Computation of Interest ExpensePayment of Interest Expense in 2012 750.00Add: Accrued Interest 360.00Total 1,110.00Less: Accrued Interest Expense, January 1 135.00Interest Expense Incurred during 2012 975.00
Schedule 11: Computation of Loss on Sale of EquipmentOriginal Cost of the Equipment Sold 15,000.00Less: Accumulated Depreciation as of the Date of Sale 7,500.00Net Book Value as of the Date of Sale 7,500.00Less: Proceeds from Sale of Equipment 6,750.00Loss on Sale of Equipment 750.00
22
BRUNO EARTH TRADINGSTATEMENT OF FINANCIAL POSITIONAS OF DECEMBER 31, 2012
in PhpAssets 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
23
BRUNO EARTH TRADINGSTATEMENT OF INCOMEFOR THE YEAR ENDED DECEMBER 31, 2012
Notes in Php2 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
24
BRUNO EARTH TRADINGSTATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED DECEMBER 31, 2012
in Php2 0 1 2
Capital, Diego, January 1 498,165.00Net Income 140,385.00Less: Drawings 168,000.00Capital, Diego, December 31 470,550.00
25
BRUNO EARTH TRADINGNotes to Financial StatementsAS OF AND FOR THE YEAR ENDED DECEMBER 31, 2012
1. TRADE AND OTHER RECEIVABLESThis 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 EQUIPMENTThis account consist of: in Php
2012 Office Equipment 114,000
114,000
3. TRADE AND OTHER PAYABLESThis 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. EQUITYThis account consist of: in Php
2012 Diego, Capital, January 1 498,165 Net Income 140,385 Less: Drawings 168,000
470,550
5. REVENUE
26
This account consist of: in Php2012
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 SOLDThis 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 EXPENSESThis 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
27
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 SUBSIDIARYELIMINATING ENTRIES
KING Corporation
QUEEN Corporation
EliminationsConsolidated
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 EarningsRetained 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.
00Dividends Declared
King Corp. 90,000
.00 90,000.
00
Queen Corp. 45,000
.00 45,000.
00Retained Earnings, 615,000. 180,000 645,000.
28
December 31 00 .00 00
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.
00Property 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.
00Common 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
29
KING CORPORATION AND SUBSIDIARYCONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS OF DECEMBER 31, 2013
in PhpAssets 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
30
1,395,000.00
Total Liabilities and Stockholders' Equity
2,145,000.00
See Accompanying Notes to Financial Statements
31
KING CORPORATION AND SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOMEFOR THE YEAR ENDED DECEMBER 31, 2013
in Php2 0 1 3
Revenue 900,000Cost of Goods Sold 427,500Gross Profit 472,500Less: Operating Expenses Operating expenses 105,000 Other expenses 82,500Net Income 285,000See Accompanying Notes to Financial Statements
32
KING CORPORATION AND SUBSIDIARYCONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYFOR THE YEAR ENDED DECEMBER 31, 2013
in Php2 0 1 2
Common Stock 750,000
Retained Earnings, January 1 450,000Net Income 285,000Dividends Declared 90,000Retained Earnings, December 31
645,000
Total Stockholders' Equity 1,395,000
33
(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 company’s 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 company’s cash and sales. Therefore, adjustments
should be made. The adjusting entry is:
34
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 company’s 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
end’s 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
35
Dec. 20 Cash 30,000 Sales 30,000
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 77,9
70
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
36
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
64360
=
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 company’s 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 company’s 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
37
125,000
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 = 45,00
0
1-Oct FIRE
105,000 3 = 26,25
0240,00
071,25
0
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:
38
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 x8
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
-
40,00
0
= 4,000
Dec. 31 Accumulated Depreciation - Furniture & Fixtures 4,000
Depreciation Expense 4,000
39
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
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
512
=
41,667
OFFICE EQUIPMENT
225,000
/ 5
X
1112
=
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:
40
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:
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
company’s expense and the liability to pay. Therefore, the adjusting entry is:
Dec. 31 Telephone Expense
6,650
Salaries 15
4,250
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:
41
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
42
(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.
43
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)
A
B
C
D
E
F
G
H
I
J
K
SAMICO TRADINGADJUSTMENTS
Total Assets Total LiabilitiesTotal
EquityRef 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 130,00
0
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 8,65
0
Cash (8,650)
6 To record other income earned on December 30, 2012 Cash 5,00
0
Other Income (5,000)
7 To record allowance for doubtful accounts Allowance for Doubtful Accounts 115,00
0
Accounts Receivables (115,000)
8 To record provisions on aging Doubtful Accounts Expenses 66,97
L
receivables 0 Allowance for Doubtful Accounts
(66,970)
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 2,257,00
0 Cost of Sales 27,545,000Beginning 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 71,25
0
Prepayment (71,250)
14 To record the correct count of office supplies as of year-end Office Supplies Expenses 20,40
0
Prepayment (20,400)
15 To record monthly prepayments used for rent expense
Rent Expense 300,000
M
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 five desktops from the additional investment by the partners
Transportation Equipment 500,000
Office Equipment 225,000
Mico, Capital (362,500) Sam, Capital (362,500)
18 To record depreciation expense of transportation equipments Depreciation Expense 41,66
7 Accumulated Depreciation - Transportation Equipment
(41,667)
19 To record depreciation expense of office equipments Depreciation Expense 41,25
0 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) 1,523,08
7
N
O