The following expenses appear in the ledger of RSE Company for the year 2024.

Bad Debts Expense 12,500 Office Salaries 3

Rent Expense 480,000 Sales Salaries and Commissions 1
SSS Contributions (employer’s share) 10,680 Philhealth Contributions (employer’s share)
Depreciation-Office Equipment 24,000 Advertising Expense
Depreciation-Store Equipment 16,500 Utilities Expense 1
Store Supplies Expense 6,750 Office Supplies Expense
Insurance Expense 8,200

Additional information:
a. Rent expense is distributed between selling and administrative expenses on the basis of the floor
area occupied by the sales and display area and administrative offices. The sales and display area
occupies 40% of the rented space.
b. The employer’s share for SSS contributions and Philhealth contributions are distributed on the
basis of the amount of offices salaries and sales salaries and commissions.
c. The insurance expense refers to insurance premiums incurred on the entity’s furniture and various
pieces of equipment being used in the administrative offices.

9. How much is the total selling/marketing expenses? ______________

Rent expense 480,000 x 40%= P192,000
Depreciation -store equipment 16,500
Store supplies expense 6,750
Sales salaries and commissions 150,000
Advertising 15,000
SSS and Philhealth 16,980 x 150/ 500= 5,094
Total Selling expenses P385,344

10. How much is the total general/administrative expenses? __________________

Rent expense 480,000 x 60%= P288,000
Depreciation -office equipment 24,000
Office supplies expense 9,500
Office salaries 350,000
Bad debts 12,500
SSS and Philhealth 16,980 x 350/ 500= 11,886
Insurance 8,200
Utilities 125,000
Total General Expenses P829,086

After its first three months of operations, the Greg Company had the following data on its operations:
Cost of goods manufactured amounted to P1,080,000
Manufacturing costs were distributed as follows:
Direct materials used – 40%
Direct labor – 35%
Manufacturing overhead – 25%
Work in process, March 31 were 20% of the total manufacturing costs
 Finished goods remaining in stock were 10% of the total cost of goods manufactured

11. How much was the direct labor cost incurred during the period? _____________________
Finished goods, ending 10% x 1,080000 108,000
Sold 90% x 1,080,000 972,000
Total available for sale P1,080,000
Finished goods, beginning 0
Cost of goods manufactured P1,080,000

Work in process, end P1,080,000/80% X 20% P270,000

Total Manufacturing cost P1,350,000
Direct Materials 40% P540,000
Direct Labor 35% 472,500
Overhead 25% 337,500

The post-tax profit of Ecstacy Mfg. Company in 2024 is P372,750. The cost of goods manufactured is
P4,800,000. The beginning inventories of goods in process and finished goods are P820,000 and P650,000,
respectively. The ending inventories are: Goods in process – P750,000; Finished goods – P550,000. The
selling expenses and general and administrative expenses are 5% and 2.5% of cost of sales respectively. (Tax
rate is 30%)

12. What is Ecstacy’s net sales for the year 2024? __________________

Net Sales 5,800,000

Less COGS 650,000+4,800,000-550,000= 4,900,000
Gross Profit P900,000
Less OPEX 4,970,000 x7.5% 367,500
Pre-tax Profit 372,750/70% 532,500

The following pretax amounts pertain to Break Company for the year ended December 31, 2024:

Sales – P800,000
Distribution and administrative costs – P84,000
Other income – P40,000
Finance costs – P4,000
Cost of goods sold – P480,000
Increase in unrealized gain on financial assets at FVOCI (pretax) during the year - P18,000
Unrealized gain on financial assets at FVOCI balance at December 31, 2024 – P27,000
Income tax rate for all items is 30%.

13. How much is the net profit for the year ended December 31, 2024?______________

Sales 800,000
Less COGS 480,000
Gross Profit 320,000
Add: Other Income 40,000
Total Income 360,000
Less OPEX 84+4 88,000
Pretax income 272,000
Less: Income Tax 272,000 x 30% 81,600
After Tax income P190,400

14. How much is the total comprehensive income for the year 2024?________________
After Tax income P190,400
Add: Other comprehensive income- net of tax 18,000 x 70% 12,600
Total Comprehensive income P203,000

SAMPLE PROBLEMS -STATEMENT OF CHANGES IN EQUITY & STATEMENT OF CASH FLOWS

The following equity balances appear in the statement of financial position of Ren Company as of December 31,
2023:

Ordinary Share Capital 20,000,000 Retained Earnings

5,250,500
Share Premium 6,240,000 Retained Earnings Appropriated for
Treasury Shares (at cost) 380,000 Treasury Shares
380,000

Relevant equity transactions during 2024 were as follows:

a. Issued additional ordinary shares with a total par value of P5,000,000 for a total consideration of
P6,300,000.
b. Reissued all of the treasury shares for a total consideration of P500,000. Retained earnings
appropriated for treasury shares was reverted back to unappropriated.
c. Profit for the year 2024 amounted to P1,890,000.
d. Cash dividends declared amounted to P750,000.

Determine the balances of the following accounts at December 31, 2024:

1. Ordinary Share Capital ___________

2. Share Premium _______________
3. Retained Earnings ________________

Ordinary Share Share Premium Treasury Shares Retained Retained

Capital Earnings Earnings
Unappropriated Appropri
ated for
Treasury
Shares
Beginning 20,000,000 6,240,000 380,000 4,870,500 380,000
Balance
a. 5,000,000 1,300,000
b. 120,000 -380,000 380,000 -380,000
c. 1,890,000
d. -750,000
Ending Balance 25,000,000 7,660,000 0 6,390,500 0

The following data relates to Quest Corporation at December 31, 2024.

a. Ordinary Share Capital, P100 par; 25,000 shares authorized; 18,000 shares issued
b. Treasury Shares (at cost), cost per share is P90.00, or a total of P108,000
c. Share Premium – P850,000

4. How many ordinary shares are outstanding at December 31, 2024? ___________
Issued 18,000 shares
Less Treasury shares 108,000/90= 1,200 shares
Outstanding shares 16,800 shares

5. How much is the total contributed capital at December 31, 2024? ______________
Ordinary Shrare Capital 18,000 sh x P100 P1,800,000
Share Premium 850,000
Total Contributed Capital P2,650,000

On January 2, 2024, Air Company agreed to pay its former president P300,000 under a deferred compensation
arrangement. Air Company should have recorded this expense in 2023 but did not do so. Air Company’s reported
income tax expense would have been P105,000 lower in 2023 had it properly accrued this deferred compensation.

6. It its December 31, 2024 financial statements, by how much should the beginning balance of its retained
earnings be adjusted? ___
Unrecorded expense P300,000
Less: Tax effect -105,000
Net of tax adjustment to Retained Earnings P195,000

On April 1, 2023, Burgundy Company purchased a machine at a cost of P500,000. The machine is being
depreciated on the straight-line basis over a five-year life without residual value. The company computes
depreciation to the nearest month. The bookkeeper overlooked this machine and no depreciation was recognized
in Burgundy’s 2023 financial statements. The error was discovered during the preparation of 2024 financial
statements. Income tax rate is 30%.

7. What is the amount of adjustment to the beginning balance of retained earnings in the 2024 statement of
changes in equity? Indicate whether debit or credit. ____________________

2023 depreciation P500,000 / 5 X 9/12 = P75,000

Less tax -22,500
Debit adjustment of Retained Earnings P52,500

debit Retained Earnings 52,500

debit tax refund 22,500
 Credit Accumulated depreciation 75,000

The following information was taken from the accounting records of Pat, Inc. for 2024:

Proceeds from issuance of preferred 3,520,00 Dividends paid on preference 400,000

shares 0 shares
Bonds payable converted to ordinary 2,000,00 Payment for purchase of machinery 540,000
shares 0
Proceeds from sale of plant building 1,250,00 2% bonus issue on ordinary shares 300,000
0
Gain on sale of plant building 80,000

8. How much is the net cash flow from investing activities during 2024? __________________
Proceeds from sale of plant building P1,250,000
Payment for purchase of machinery -540,000
Net Cash provided (used) by investing activity P710,000

9. How much is net cash flow from financing activities during 2024? ______________
Proceeds from issuance of preferred shares P3,520,000
Dividends paid on preference shares -400,000
Net Cash provided (used) by financing activity P3,120,000

The following information is taken from the records of Grand Company for 2024.

Net profit 10,840,000 Depreciation expense 4,400,000

Increase in accounts 800,000 Decrease in accounts payable 2,800,000
receivable
Decrease in inventories 7,500,000 Issuance of long-term note 4,200,000
payable for cash
Gain on sale of land 8,000,000 Increase in wages payable 300,000
Increase in prepaid assets 500,000 Patent amortization expense 700,000
Payment of cash dividends 1,800,000 Amortization of discount on debt
investments at amortized cost 320,000

10. How much is the net cash flow from operating activities during 2024? ________________
Net profit P10,840,000
Add/ Less: non cash items
Add: Depreciation expense 4,400,000
Add: Patent amortization expense 700,000
Less:Amortization of discount on debt investments at amortized cost (income) -320,000
Less: Gain on sale of land -8,000,000
(Increase) Decrease in assets
Increase in accounts receivable -800,000
Increase in prepaid assets -500,000
Decrease in inventories +7,500,000
Increase (Decrease) in Liabilities
Decrease in accounts payable -2,800,000
Increase in wages payable +300,000
Cash flows from operations before interest and income tax P11,320,000

The following items are taken from the records of World Company for 2024:
• Profit for the year, P1,295,000 (net of 30% income tax)
• Payment for purchase of land, P400,000
• Depreciation expense, P550,000
• Proceeds from issuance of ordinary shares, P700,000
• Income from investment in associates, P450,000
• Patent amortization expense, P270,000
• Interest expense, P90,000
• Increase in accounts receivable, P340,000
• Payment of dividends, P500,000
• Increase in accounts payable, P26,000
• Increase in interest payable, P18,000
• Decrease in income tax payable, P60,000

11.What is the amount of cash generated from operating activities reported in World’s 2024 Statement of Cash
Flows? _______

Pre tax and interest Profit 1,295,000 /70% + 90,000 P1,940,000

Add: Depreciation 550,000
Less: Income from associates -450,000
Add: Patent amortization 270,000
Increase in accounts receivable -P340,000
Increase in accounts payable + P26,000
Cash flows from operations before interest and income tax P1,996,000
Less: Payment of Interest 90,000-18,000 -72,000
Less: Payment of tax 1,295,000 /70% x 30%+60,000 -615,000
Net Cash provided by operating activities P1,309,000

12. How much was the interest paid during 2024? ___________
Payment of Interest 90,000-18,000 -72,000

13. How much was the income tax paid during 2024? ______________
Payment of tax 1,295,000 /70% x 30% +60,000 -615,000
Sales salaries are reported on the accrual income statement for 2024 at P1,070,000. The data from the
statement of financial position relating to sales salaries during 2024 are as follows:

Prepaid salaries: January 1 – P25,000; December 31 – P10,000

Salaries payable: January 1 – P70,000; December 31 – P75,000

14. How much was the cash payments for salaries during 2024 to be reported in the operating activities section
under the direct method? ___________

Sales salaries incurred 1,070,000

Add: Salaries payable beg 70,000
Less:Salaries payable end 75,000
1,065,000
Add: prepaid salaries end 10,000
Less: prepaid salaries beg 25,000
Cash paid 1,050,000

The following data is given for Excelsior Company for the year 2024.

Sales reported in the income statement – P2,520,000

Accounts receivable, January 1–P660,000
Accounts receivable, December 31–P250,000
Uncollectible accounts written off during the year –P140,000

15. Under the direct method of reporting cash flows from operating activities, how much cash was collected from
customers during 2024? ______
Accounts receivable, January 1 P660,000
Add Sales reported in the income statement 2,520,000
Less: Accounts receivable, December 31 250,000
Less: Uncollectible accounts written off during the year 140,000
Paid P2,790,000