CHAPTER 3

THE BALANCE SHEET AND NOTES TO THE FINANCIAL STATEMENTS

3-1 (Gates Company)

Gates Company
Balance Sheet
December 31, 2010

Assets
Current assets: Note
Cash and cash equivalents P 35,000
Trading securities 61,000
Trade receivables (1) 107,000
Inventory 322,000 P 525,000
Noncurrent assets:
Property, plant and equipment (2) P1,483,000
Investment Property 1,000,000
Investments in associates 250,000
Intangibles (3) 141,000 2,874,000
TOTAL ASSETS 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 1 Trade receivables

Accounts receivable P115,000
Less Allowance for doubtful accounts 8,000
Net trade receivables P107,000

Note 2 Property, plant and equipment

Land P 300,000
Buildings P1,440,000
Less accumulated depreciation 530,000 910,000
Equipment P 624,000
Less accumulated depreciation 351,000 273,000
Total property, plant and equipment P1,483,000

Note 3 Intangibles
Patents, net of accumulated amortization of P22,000 P 98,000
Trademarks, net of accumulated amortization of P17,000 43,000
Total P141,000

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Note 4 Trade and other payables
Accounts payable P236,000
Salaries payable 20,000
Withholding taxes payable 80,000
Total P336,000

Note 5 Bonds payable

Bonds payable (due 2009) P 770,000
Less discount on bonds payable 69,000
Total P701,000

Note 6 Share capital

Preference share, P100 par P 210,000
Ordinary share, P10 par 300,000
Stock dividends distributable 24,000
Total P 534,000

Note 7 Reserves
Paid-in capital in excess of par-preference P 81,000
Paid-in capital in excess of par-ordinary 240,000
Appropriated retained earnings 45,000
Total P366,000

3-2 (Starbucks Company)

Starbucks Company
Balance Sheet
December 31, 2010

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

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Note 1 Temporary investments
The trading securities, costing P150,000, are reported at market values.

Note 2 Trade receivables

Accounts receivable P323,000
Less Allowance for doubtful accounts 15,000
Net trade receivables P308,000

Note 3 Inventories (at lower of cost or NRV)

Finished Goods P416,000
Goods in process 347,000
Raw materials 222,000
Total P985,000

Note 4 Property, plant and equipment

Land P320,000
Land Held for Future Use* 195,000
Buildings P1,824,000
Less accumulated depreciation 622,000 1,202,000
Machinery P 319,000
Less accumulated depreciation 106,000 213,000
Equipment P 530,000
Less accumulated depreciation 212,000 318,000
Total 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. 9 of PAS 40. Thus,
property held for future development and subsequent use as owner-occupied property is
part of property, plant and equipment.

Note 5 Other financial assets

Held to Maturity Securities, at amortized cost P250,000
Cash surrender value of life insurance 89,000
Total P339,000

Note 6 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 7 Bonds payable

Bonds payable P800,000
Add Premium on bonds payable 48,000
Total P848,000

Note 8 Share Capital

Preference share P400,000
Ordinary share 628,000
Total P1,028,000

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Note 9 Reserves
Paid-in capital in excess of par-preferred P234,000
Paid-in capital in excess of par-common 303,000
Total 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, 2010

Assets

Current assets: Note

Cash P 230,000
Trading securities 320,000
Trade receivables (1) 510,000
Inventories 600,000
Prepaid expenses (2) 200,000 P1,860,000
Noncurrent assets:
Property, plant and equipment (3) P3,450,000
Available for sale securities 1,030,000
Patents 470,000 4,950,000
TOTAL ASSETS P6,810,000

Liabilities and Shareholders Equity

Current liabilities:
Trade and other payables (4) P1,390,000
Unearned rent 90,000 P1,480,0900
Noncurrent liabilities:
Bonds payable (5) 1,000,000
Shareholders equity:
Ordinary Share Capital, P10 par P1,200,000
Share Premium 1,040,000
Retained earnings 2,420,000
Total P4,660,000
Less Treasury shares, at cost 330,000 4,330,000
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY P6,810,000

Note 1 Trade receivables

Accounts receivable P590,000
Less Allowance for doubtful accounts 80,000
Net trade receivables P510,000

Note 2 Prepaid expenses

Office supplies P 80,000
Prepaid insurance 120,000
Total P200,000

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Note 3 Property, plant and equipment
Land P 810,000
Buildings and equipment P3,560,000
Less accumulated depreciation 920,000 2,640,000
Total P3,450,000

Note 4 Trade and other payables

Accounts payable P 990,000
Salaries payable 150,000
Taxes payable 250,000
Total P1,390,000

Note 5 Bonds payable

Bonds payable P1,100,000
Less discount on bonds payable 100,000
Net P1,000,000

3-4 (Net Company)

Net Company
Balance Sheet
December 31, 2010

Assets
Current assets: Note
Cash P 380,000
Current marketable securities 460,000
Trade receivables (1) 2,780,000
Inventories 3,050,000
Prepaid insurance 290,000 P 6,960,000
Noncurrent assets:
Property, plant and equipment (2) P 7,100,000
Other financial assets (3) 1,600,000
Intangibles (4) 960,000 9,660,000
TOTAL ASSETS P16,620,000

Liabilities and Shareholders Equity

Current liabilities:
Trade and other payables (5) P 2,750,000
Income taxes payable 720,000 P 3,470,000
Noncurrent liabilities:
Bonds payable (6) P 4,430,000
Mortgage payable 1,600,000 6,030,000
Stockholders equity:
Share capital (7) P 1,700,000
Paid-in capital in excess of par 1820,000
Retained earnings 3780,000
Total P 7,300,000
Less Treasury stock, at cost 180,000 7,120,000
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY P16,620,000

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Note 1 Trade receivables
Accounts receivable (1,850,000 + dishonored
notes receivable of P1,000,000) P2,850,000
Less Allowance for doubtful accounts 70,000
Net trade receivables P2,780,000

Note 2 Property, plant and equipment

Land P1,200,000
Buildings P6,340,000
Less accumulated depreciation 2,100,000 4,240,000
Equipment P2,960,000
Less accumulated depreciation 1,300,000 1,660,000
Total P7,100,000
Note 3 Other financial assets
Investment in Day Corporation bonds P 900,000
Sinking fund for bond retirement 700,000
Total P1,600,000

Note 4 Intangibles
Patents P820,000
Less accumulated amortization 230,000 P 590,000
Trademarks P520,000
Less accumulated amortization 150,000 370,000
Total P960,000

Note 5 Trade and other payables

Accounts payable P1,940,000
Wages payable 410,000
Current portion of mortgage payable 400,000
Total P2,750,000

Note 6 Bonds payable

Bonds payable P4,000,000
Add premium on bonds payable 430,000
Total P4,430,000

Note Share capital

Preference share P600,000
Ordinary share 1,100,000
Total P1,700,000

3.5 (Makati Company)

Current assets consist of:

Cash (1,240,000 500,000) P 740,000
Trading securities (900,000 + 500,000) 1,400,000
Trade accounts receivable (net of P60,000 allowance for
bad debts) 1,220,000 + 70,000 60,000 1,230,000
Notes receivable 920,000
Creditors account with debit balance 120,000
Merchandise inventory 1,360,000
Total current assets P 5,770,000

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Current liabilities consist of:
Trade accounts payable (750,000 + 150,000 + 120,000) 1,020,000
Customer deposit 70,000
Notes payable (1,500,000 300,000) 1,200,000
Current portion of bonds payable 500,000
Income taxes payable 280,000
Employees income tax withheld 40,000
Total current liabilities P 3,110,000

3-6 (Internet Company)

Current liabilities consist of:
Accounts payable P 270,000
Mortgage notes payable 1,300,000
Bank notes payable 100,000
Interest payable 7,500
VAT payable (2,688,000/1.12) x .12 288,000
Withholding tax payable 120,000
Income taxes payable (86,500 55,000) 31,500
Total current liabilities P2,117,000

Note: The entire amount of Mortgage notes payable is classified as current liabilities because as of
December 31, 2010, 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) P 995,000
Accounts receivable (net) 650,000
Inventories (1,200,000 40,000) 1,160,000
Prepaid insurance (250,000 50,000) 200,000
Total current assets at December 31, 2010 P3,005,000
or
Reported total P4,580,000
Bank overdraft 20,000
Cash for purchase of plant site (1,500,000)
Unreplenished petty cash expenses ( 5,000)
Goods held on consignment ( 40,000)
Cash surrender value of life insurance ( 50,000)
Total current assets at December 31, 2010 P3,005,000

3-8 (Streamer Company)

Current Non-current Current Non-current
assets assets liabilities liabilities
Reported totals P3,500,000 P8,000,000 P2,400,000 P2,700,000
(a) Retirement fund cash 380,000 380,000
(b) Treasury shares (500,000)
(c) Cash fund for taxes 140,000 140,000
(d) Advances and
commissions payable 210,000 210,000
Correct totals P3,850,000 P7,880,000 P2,750,000 P3,080,000

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 3-9 (Ping Company)
Cash Accounts Receivable Inventories
Reported amounts P536,000 P3,285,000 P3,500,000
(a) Post dated check recorded 80,000 80,000
(b) Goods shipped FOB destination (180,000) 120,000
(c) Goods out on consignment 135,000
Correct balances, Dec. 31, 2006 P616,000 P3,105,000 P3,835,000

3-10 (Lime Company)

Current assets:
Accounts receivable (net) P136,000
Citibank current account 98,000
Inventories 217,500 P451,500
Current liabilities:
Accounts payable P124,000
Income tax payable 16,000
Advances from suppliers 150,000
Accrued interest on bonds payable 17,000
Provision for warranties 60,000 367,000
Working capital P 84,500

MULTIPLE CHOICE QUESTIONS

MC1 D MC11 C MC. 21 D
MC2 A MC12 D MC 22 C
MC3 A MC13 C MC 23 C
MC4 C MC14 D MC 24 A
MC5 A MC15 B MC 25 B
MC6 C MC16 A
MC7 D MC17 C
MC8 D MC18 D
MC9 C MC19 C
MC10 B MC20 C

MC26 A (200,000-50,000) + 120,000 + 80,000 + (280,000 60,000) 1,000=569,000

MC27 B 374,000 + 5,000 400 + 10,000 18,000 + 5,000 = 3,750,600
MC28 B 268,000 + 5,000 + 10,000 +5,000 100,000 = 1,880,000
MC29 D 401,400 900 - 15,000 = 3,855,000
MC30 C (124,000 + 3,000) + 90,000 + 92,000 + (122,000 + 7,000) 6,000 +
136,000 + 12,000 = 590,000
MC31 B 13,000 + (75,000 + 12,000 + 15,000) + 7,000 + (150,000 30,000) + 4,000
+ 50,000 + 28,000 = 324,000
MC32 B (1,125,000+65,000) + 136,000 + 96,000 + 150,000 +
(750,000/5)=1,722,000
MC33 C 376,000 + (2,000,000+100,000 8,000) = 2,468,000
MC34 A 360,000 + 480,000 30,000 12,000 + 90,000 + 120,000 = 1,008,000
MC35 A 450,000 + 750,000 90,000 + 240,000 = 1,350,000
Correction: Bonds payable due 2008
MC36 A 2,160,000 250,000 + 224,000 + 830,000 + 970,000 = 3,934,000
MC37 C 980,000 + 108,000 + 720,000 = 1,808,000
MC38 A (490,000 25,000) + (380,000 200,000) + (1,250,000 500,000) +

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 100,000 + 900,000 + 80,000 = 2,475,000
MC39 B 25,000 + 200,000 + 500,000 + 200,000 + 3,750,000 = 4,675,000
MC40 D 160,000 + 50,000 + 110,000 + 300,000 + 10,000 = 630,000
MC41 D 675,000 + (2,695,000 500,000) + 2,185,000 = 5,055,000
MC42 A 1,801,000 + (763,000 475,000) = 2,089,000
MC43 D 13,360,000 11,180,000 763,000 = 1,417,000;
1,417,000 + 3,350,000 = 4,767,000
MC44 B 1,000,000 + 1,500,000 + 25,000 = 2,525,000
MC45 C 500,000 + 550,000 250,000 = 800,000 + 1,000,000 + 250,000 + 450,000 =
2,500,000
MC46 B 150,000 + (2,100,000 500,000 80,000) + (1,600,000 200,000)
MC47 B (550,000 95,000) + 800,000 + (800,000 X 12% X 7/12) + 6,500
MC48 C 8,700,000 (4,000,000 2,000,000 + 5,000,000 1,000,000) =2,700,000
MC49 B 175,000 + 136,000 + 820,000 + 153,000 + 366,000 = 1,650,000
MC50 A 250,000 + 140,000 + 228,000 + 248,000 = 866,000
MC51 C 525,000 400,000 + 300,000 + 1,020,000 + 1,2000,000 + 450,000

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