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FINANCIAL ACCOUNTING AND REPORTING

STATEMENT OF COMPREHENSIVE INCOME

Learning Objectives:
Problem 1. Determining correct items to be included in profit or loss.
Problem 2. Income from continuing operations distinguished from discontinued operations.
Problem 3. Classifying expenses according to function.
Problem 4. Determining profit using the nature of expense format.
Problem 5. Cost of goods sold computed using increases and decreases in inventory accounts.
Problem 6. Work back problem by determining cost of goods sold using the gross profit method.
Problem 7. Determining profit and loss and comprehensive income.
Problem 8. Comprehensive problem on the two major classifications of other comprehensive
income.

1. Francis Company’s shareholders’ equity on January 1, 2019 was at P40,000,000. Francis Company did not issue any shares and did not
acquire any treasury shares during the year. The company reported a net income of P10,000,000 for the year ended December 31, 2019.

The auditor raised questions about the following amounts that had been included in the net income:
Loss from expropriation of property, net 1,500,000
Unrealized gain on the increase in value of FA at FVOCI 500,000
Adjustment of profit of prior year, net- debit 4,500,000
Accumulated forex translation loss 2,000,000
Revaluation surplus realized 1,000,000
Loss on write-off of inventory due to a government prohibition, net 3,500,000
The loss from expropriation was unusual in occurrence in Francis’s line of business. Francis Company’s 2019 income statement should report
net income at
a. 15,000,000 c. 15,500,000
b. 13,000,000 d. 16,000,000

2. Hanson Company had the following gains during 2019 which was considered to be unusual and infrequent in Hanson’s line of business:
Gain on the extinguishments of long-term bonds payable 500,000
Foreign currency transaction gain due to major devaluation 600,000
Gain from the expropriation of asset 800,000
Loss from the disposal of assets of discontinued operation 1,000,000
What total amount of gains should Hanson include as component of income from continuing operations?
a. 1,400,000 c. 2,900,000
b. 1,900,000 d. 2,100,000

3. Stallion Corporation separates operating expenses in two categories: selling, and general and administrative expenses. The adjusted trial
balance at December 31, 2019, included the following expenses and loss accounts:
Interest 1,400,000
Accounting and audit Fees 500,000
Advertising 800,000
Freight-out 1,600,000
Product development 350,000
Loss on sale of long-term investment 100,000
Officers' salaries 900,000
Depreciation on delivery equipment 400,000
Rent for office space 1,200,000
Sales salaries and commissions 750,000

One-half of the rented premises is occupied by the sales department. The entity’s total selling expenses for 2019 are
a. 4,750,000 c. 5,100,000
b. 3,950,000 d. 4,150,000

4. The general ledger trial balance of Michael Company includes the following accounts on December 31, 2019:
Sales revenue 9,750,000
Interest income 200,000
Share of profit of associate 150,000
Other income 50,000
Decrease in inventory of finished goods 250,000
Raw materials and consumables used 3,500,000
Employee benefit expense 1,500,000
Translation loss of foreign operations 300,000
Depreciation 450,000
Impairment loss on property 800,000
Finance costs 350,000
Other expenses 450,000
Income tax expense 750,000

What is the profit for the year ended December 31, 2019?
a. 2,100,000 c. 2,600,000
b. 1,800,000 d. 6,000,000
#2 Exercises
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5. The following information was taken from Ozz Company’s accounting records for the year ended December 31, 2019:

Sales 10,000,000
Decrease in goods in process inventory 200,000
Decrease in raw materials inventory 350,000
Increase in finished goods inventory 500,000
Raw materials purchased 2,100,000
Direct labor payroll 1,000,000
Factory overhead 800,000
Freight in 300,000
Freight out 900,000
General and administrative expenses 1,600,000

How much is Ozz Company’s income before tax?

a. 4,150,000
b. 4,000,000
c. 3,250,000
d. 3,750,000

6. The following information with regard to Brisbane Company’s inventory for 2019 is available:
January 1 December 31
Raw materials 2,000,000 2,500,000
Work in process 5,100,000 4,300,000
Finished goods 6,000,000 4,000,000
The gross profit rate historically is 30% of sales. The sales for the year amounted to P25,000,000. Direct labor costs for the year were
P6,000,000, and manufacturing overhead has been applied at 60% of direct labor. What was Brisbane’s raw material purchases in 2019?
a. 5,600,000 c. 7,100,000
b. 5,100,000 d. 7,600,000

7. The income statement accounts of Gringo Company for the year 2019 included the following:

Net sales 9,500,000

Cost of goods sold 4,000,000
Distribution cost 600,000
Administrative expenses 1,200,000
Interest expense 700,000
Other expense 400,000
Interest income 200,000
Gain from expropriation 100,000
Investment income 200,000
Income tax 800,000
Income from discontinued operations 600,000
Unrealized gain FA at FVTOCI 1,100,000
Foreign currency translation adjustment loss 200,000
Revaluation surplus 2,500,000
Dividends declared 1,000,000
Investments by shareholders 400,000
Correction of an error-debit 3,000,000

1. The 2019 statement of comprehensive income should report income before income taxes at what amount?
a. 3,000,000
b. 3,100,000
c. 2,300,000
d. 3,500,000

2. The 2019 statement of comprehensive income should report income from continuing operations at what amount?
a. 3,200,000
b. 3,100,000
c. 2,300,000
d. 2,900,000

3. The 2019 statement of comprehensive income should report net income at what amount?
a. 3,400,000
b. 3,100,000
c. 2,300,000
d. 2,900,000

4. The 2019 statement of comprehensive income should report comprehensive income at what amount?
a. 5,700,000
b. 6,300,000
c. 5,900,000
d. 6,500,000

#2 Exercises
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8. Mark Company provided the following information for the current year:

Income from continuing operations 5,000,000

Income from discontinued operation 1,300,000
Unrealized gain on financial asset at FVTPL 2,500,000
Unrealized gain on equity financial assets at FVTOCI 1,500,000
Unrealized loss on bonds and other debt financial assets at FVTOCI 650,000
Unrealized gain on futures contract designated as a cash flow hedge 500,000
Actuarial loss during the year due to increase in PBO 400,000
Foreign translation adjustment – credit 1,800,000
Revaluation surplus during the year 2,000,000
Loss on credit risk of financial liability designated at FVPL 300,000

Mark’s tax rate is 30%. Other comprehensive items listed above are all net of tax amounts.

1. What is the net income reported for the current year?

a. 5,000,000
b. 6,300,000
c. 3,500,000
d. 4,410,000

2. What is the amount of OCI that is recycled to profit or loss?

a. 3,150,000
b. 1,650,000
c. 4,450,000
d. 1,500,000

3. What is the amount of OCI that is recycled to retained earnings?

a. 2,000,000
b. 2,800,000
c. 4,300,000
d. 4,450,000

4. What is the comprehensive income for the year?

a. 9,100,000
b. 10,750,000
c. 10,250,000
d. 12,550,000

#2 Exercises