Answered: 46. Adjusted retained earnings as of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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During the course of the audit, the following additional information was obtained:

The trading securities were acquired on December 31, 2011. The securities have a fair value of P67,000 at

December 31, 2012.

In discussion with the company officials, it was determined that the doubtful accounts expense rate based on net sales should be reduced to 2% from 3%, effective January 1, 2012.

As a result of errors in the physical count, inventories were overstated by P12,000 at December 31, 2011 and by P17,500 at December 31, 2012.

On January 1, 2011, the cost of equipment purchased for P30,000 was debited to repairs and maintenance. PRTC depreciates equipment of this type by the straight-line method over a five-year life with no residual value.

On July 1, 2012, fully depreciated equipment purchased for P21,000, was sold as scrap for P2,500. The only entry PRTC made was to debit cash and credit property and equipment for the scrap proceeds. The property and equipment (net) had a current cost of P250,000 at December 31, 2012.

Advertising and promotion expense for the year ended December 31, 2011 includes the P25,000 cost of

printing sales catalogs for a special promotional campaign held in January 2012.

PRTC was named as a defendant in a lawsuit in October 2012. PRTC's counsel is of the opinion that PRTC has a good defense, and does not anticipate any impairment of PRTC's assets or that any significant liability will be incurred. Nevertheless, PRTC’s management wished to be conservative and, therefore, established a loss contingency of P100,000 at December 31, 2012.

QUESTIONS:

Based on the above and the result of your audit, compute for the following:

(Disregard income taxes)

46.

Adjusted retained earnings as of January 1, 2012

a. P266,000

c. P285,000

b. P297,000

d. P291,000

47.

Adjusted profit for the year ended December 31, 2012

a. P281,800

c. P287,800

b. P181,800

d. P306,800

48.

Adjusted current assets as of December 31, 2012

a. P1,226,760

c. P1,154,900

b. P1,190,300

d. P1,202,300

49.

Adjusted carrying amount of property and equipment as of December 31, 2012

a. P168,500

c. P178,000

b. P180,500

d. P192,500

50.

Adjusted shareholders’ equity as of December 31, 2012

a. P962,800

c. P974,800

b. P950,800

d. P862,800

PRTC, Inc.
Statements of Financial Position
December 31, 2012 and 2011
2011
2012
Assets
Cash
P 275,000
P150,000
Trading securities
78,000
487,000
78,000
392,000
Accounts receivable
Allow. for doubtful accounts
(50,000)
(32,000)
Inventories
425,000
307,000
Property and equipment
Accumulated depreciation
310,000
217,000
(150,000)
P1,375,000
(121,000)
P 991,000
Total assets
Liabilities and Equity
Accounts payable and accrued
liabilities
P 420,000
P347,000
Estimated liability from lawsuit
Share capital, P10 par
100,000
260,000
130,000
260,000
Share premium
130,000
Retained earnings
Total liabilities and equity
465,000
P1,375,000
254,000
P 991,000
PRTC, Inc.
Income Statements
For the Years Ended December 31, 2012 and 2011
2012
2011
Net sales
P1,580,000
P1,250,000
Operating expenses:
Cost of sales
P 755,000
P 690,000
Selling and admin.
485,000
365,000
Depreciation
29,000
18,000
Est. loss from lawsuit
100,000
P1,369,000
P 211,000
P1,073,000
P 177,000
Profit
During the course of the audit, the following additional information was obtained:

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