Compute the amount of expense to be recognized in the income statement for the year ended December 31, 2021.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![XYZ Company merged into UUU Company on July 1, 2021. In exchange for the net assets at
fair market value of XYZ Company amounting to P696,450, UUU, issued 68,00o0 ordinary
shares at P9 par value with a market price of Pi2 per share. Out-of-pockets of the
combination were as follows:
Legal fees for the contract of business combination P35,600
Audit fee for SEC registration of stock issue P90,000
Printing costs of stock certificates P14,500
Broker's fee P23,600
Accountant's fee for pre-acquisition P80,000
Other indirect cost of acquisition P75,000
General and allocated expenses P43,000
Listing fees in issuing new shares P36,000
XYZ will pay an additional cash consideration of P455,000 in the event that UUU's net
income will be equal or greater than P950,000 for the period ended December 31, 2021.
At acquisition date, there is a high probability of reaching the target net income and the fair
value of the additional consideration was determined to be P195,000. Actual net income for
the period ended December 31, 2021 amounted to P1,250,000. The additional cash
consideration was paid.
Compute the amount of expense to be recognized in the income statement for
the year ended December 31, 2021.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F96a6f1e3-6533-4c77-9203-3af4120a0ca5%2F8b85e9e9-e970-4067-b52d-c05f94b17239%2F6v5nt_processed.png&w=3840&q=75)
![](/static/compass_v2/shared-icons/check-mark.png)
Step by step
Solved in 3 steps with 3 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![Financial Reporting, Financial Statement Analysis…](https://www.bartleby.com/isbn_cover_images/9781285190907/9781285190907_smallCoverImage.gif)
![Financial Reporting, Financial Statement Analysis…](https://www.bartleby.com/isbn_cover_images/9781285190907/9781285190907_smallCoverImage.gif)