ACT150

Current and Non-Current Assets and Liabilities II

Answers are subject to change. Each one is encouraged to solve each problem and raise any inconsistencies for
discussion/ deliberation.

CASE I ABC Company reported the following statement of financial position on December 31, 2022.
Current Assets 2,000,000 Current liabilities 1,500,000
Investments 400,000 Long term liabilities 2,000,000
Tangible Assets 7,150,000 Equity 6,450,000
Intangible Assets 400,000
 Equity has preference share capital, no par value, ₱5 stated value, authorized 300,000 shares, issued 150,000 shares
for ₱1,000,000, and ordinary share capital, ₱20 par value, authorized 400,000 shares, issued 100,000 shares of ₱30
per share.
 Tangible assets include building ₱5,000,000 less accumulated depreciation ₱1,600,000, equipment ₱1,400,000 less
accumulated ₱400,000, land ₱1,250,000, and land held for future plant site ₱1,150,000.
 The current assets include: Cash ₱400,000, accounts receivable ₱750,000 less ₱50,000 for allowance for doubtful
accounts, inventories ₱800,000, and prepaid expenses ₱100,000.
 The investments include the cash surrender value of a life insurance contract ₱50,000, investment in securities, short-
term, ₱100,000, and long-term, ₱250,000.
 Intangible assets include a franchise ₱100,000, goodwill ₱200,000 and discount on bonds payable ₱100,000.
 Current liabilities include accounts payable ₱400,000, notes payable- short-term debt ₱450,000, and long-term
₱300,000, taxes payable ₱150,000, and appropriation for contingencies ₱200,000.
 Long-term liabilities comprised solely of 12% bonds payable due on December 31, 2025.
1. Current assets 2,100,000
2. Total assets 9,850,000
3. Current liabilities 1,000,000
4. Non-current liabilities 2,200,000

CASE II ABC Company reported the following adjusted account balances on December 31, 2022:

Cash and cash equivalents P200,000

Accounts receivable 430,000
Inventories 1,280,000
Financial asset at fair value thru OCI 1,250,000
Land 500,000
Building 3,000,000
Accumulated depreciation – building 800,000
Plant and equipment 1,200,000
Accumulated depreciation – plant and equipment 200,000
Patent 1,100,000
Note payable – bank due June 30, 2024 1,700,000
Accounts payable 550,000
Provisions 130,000
Income tax payable 60,000
Deferred tax liability 140,000
Retained earnings – January 1, 2022 1,800,000
Dividends 500,000
Revaluation surplus – January 1, 2022 180,000
Unrealized gain on financial asset – January 1, 2022 140,000
Share capital 3,000,000
Sales 5,000,000
Unrealized gain on financial asset during the year 50,000
Revaluation surplus on land during the year 70,000
Cost of goods sold 3,000,000
Distribution costs 980,000
Administrative expenses 300,000
Income tax expense 80,000

Determine the current assets, non-current assets, current liabilities and non-current liabilities.
CASE III The following balance sheet was prepared by the bookkeeper for Perry Company as of December 31, 2024.

Perry Company
Balance Sheet
as of December 31, 2024

Cash P 80,000 Accounts payable P 75,000

Accounts receivable (net) 52,200 Long-term liabilities 100,000
Inventories 57,000 Stockholders' equity 218,500
Investments 76,300
Equipment (net) 96,000
Patents 32,000
P393,500 P393,500

The following additional information is provided:

1. Cash includes the cash surrender value of a life insurance policy P9,400, and a bank overdraft of P2,500 has
been deducted.
2. The net accounts receivable balance includes:
a. accounts receivable—debit balances P60,000;
b. accounts receivable—credit balances P4,000;
c. allowance for doubtful accounts P3,800.
3. Inventories do not include goods costing P3,000 shipped out on consignment. Receivables of P3,000 were
recorded on these goods.
4. Investments include investments in common stock, trading P19,000 and available-for-sale P48,300, and
franchises P9,000.
5. Equipment costing P5,000 with accumulated depreciation P4,000 is no longer used and is held for sale.
Accumulated depreciation on the other equipment is P40,000.

Instructions: Compute the total current assets, non-current assets, and total liabilities.
Suggested Answer: 206,300, 193,700, 181,500

CASE IV The following balance sheet has been submitted to you by an inexperienced bookkeeper. List your suggestions
for improvements in the format of the balance sheet. Consider both terminology deficiencies as well as classification
inaccuracies.

ABC Industries, Inc.

Balance Sheet
For the Period Ended 12/31/22

Assets
Fixed Assets—Tangible
Equipment P110,000
Less: reserve for depreciation (40,000) P 70,000
Factory supplies 22,000
Land and buildings 400,000
Less: reserve for depreciation (150,000) 250,000
Plant site held for future use 90,000 P 432,000
Current Assets
Accounts receivable 175,000
Cash 80,000
Inventory 220,000
Treasury stock (at cost) 20,000 495,000
Fixed Assets--Intangible
Goodwill 80,000
Notes receivable 40,000
Patents 26,000 146,000
Deferred Charges
Advances to salespersons 60,000
Prepaid rent 27,000
Returnable containers 75,000 162,000
TOTAL ASSETS P1,235,000
Liabilities
Current Liabilities
Accounts payable P140,000
Allowance for doubtful accounts 8,000
 Common stock dividend distributable 35,000
Income taxes payable 42,000
Sales taxes payable 17,000 P 242,000
Long-Term Liabilities, 5% debenture bonds, due 2022 500,000
Reserve for contingencies 150,000 650,000
TOTAL LIABILITIES 892,000
Equity
Capital stock, P10.00 par value, issued 12,000 shares with
60 shares held as treasury stock P150,000
Capital surplus 90,000
Dividends paid (20,000)
Earned surplus 123,000
TOTAL EQUITY 343,000
TOTAL LIABILITIES AND EQUITY P1,235,000

Note 1. The reserve for contingencies has been created by charges to earned surplus and has been established to
provide a cushion for future uncertainties.
Note 2. The inventory account includes only items physically present at the main plant and warehouse. Items located at
the company's branch sales office amounting to P40,000 are excluded since the company has consistently
followed this procedure for many years.

Solution:
1. The heading should be as of a specific date rather than for a period of time.
2. Reserve for Depreciation is poor terminology; the title Accumulated Depreciation is more appropriate.
3. Land and buildings should be segregated into two accounts. The Accumulated Depreciation account should only be
reported for the buildings.
4. Plant site held for future use should be shown in the Investments section.
5. Current assets should be shown on the balance sheet first in most situations; current assets are listed usually in
order of liquidity; factory supplies should be shown as a current asset.
6. Treasury stock is not an asset, but a contra account to stockholders' equity in most situations.
7. Notes receivable should be reported as a current asset or an investment.
8. The deferred charge items should be reclassified as follows in most situations:
Advances to salespersons—current asset
Prepaid rent—current asset
Returnable containers—current asset
9. Allowance for doubtful accounts should be shown as a contra account to accounts receivable.
10. Common stock dividend distributable should be shown in stockholders' equity.
11. 5% debenture bonds should be shown on a separate line.
12. Reserve for Contingencies should be shown as an appropriation of retained earnings. The authors prefer the term
"appropriation" to the term "reserve."
13. Capital stock should be shown at the par value of the shares issued, P120,000. Any excess should be included in a
paid-in capital account.
14. Capital surplus and earned surplus are poor terminology. The terms "additional paid-in capital" and "retained
earnings" are more appropriate.
15. The dividends paid title is a misnomer. It probably is a dividends declared item that should be closed to retained
earnings.
16. No reference in the body of the statement is made to the notes. The order of the notes is wrong.
17. Note 2 indicates that the inventory account is understated by P40,000.
18. Specific identification and description of all significant accounting principles and methods that involve selection from
among alternatives and/or those that are peculiar to a given industry should be disclosed in the annual report.