ILLUSTRATIVE EXAMPLES

Financial Statements

Statement of Financial Position

1. [Current vs. noncurrent assets] The books of Pinnacle Company as of December 31, 2025 show the
following:

Cash P5,000
Trade accounts receivable (net of P5,000
credit balance in customer accounts) 20,000
Held for trading securities 40,000
Financial assets designated at FVPL 15,000
Investment in equity securities at FVOCI 35,000
Investment in bonds measured at
amortized cost (due in 3 years) 30,000
Prepaid assets 5,000
Deferred tax asset (expected to reverse in 2026) 6,000
Investment in associate 18,000
Investment property 23,000
Sinking fund 19,000
Property, plant and equipment 50,000
Goodwill 14,000

Requirement: Compute for the total current and noncurrent assets.

2. [Current vs. noncurrent liabilities] The books of Mr. Accounting Company as of December 31, 2025
show the following:

Bank overdraft P5,000

Trade accounts payable (net of P5,000
debit balance in suppliers’ accounts) 20,000
Notes payable (due in 20 semi-annual
payments of P2,000) 40,000
Interest payable 15,000
Bonds payable (due March 31, 2026) 35,000
Discount on bonds payable (15,000)
Dividends payable 5,000
Share dividends payable 6,000
Deferred tax liability (expected to reverse in 2026) 18,000
Income tax payable 22,000
Contingent liability 50,000
Retained earnings appropriation for contingencies 14,000

Requirement: Compute for the total current and noncurrent liabilities.

Statement of Comprehensive Income

3. [Selling/distribution vs. administrative expenses] CPA Company presented the following

information in 2025:

Insurance expense P50,000

Advertising expense 10,000
Freight out 5,000
Freight in 2,000
Loss on sale of equipment 1,000
Legal and other professional fees 6,000
Rent expense (one-half occupied
by sales department) 4,000
Sales commission expense 7,000
Doubtful accounts expense 8,000
Cost of goods sold 300,000
Interest expense P12,000

Requirement: Determine the amounts of expenses classified as:

a. Selling or distribution expenses
b. Administrative expenses
c. Other expenses

4. [Other comprehensive income (OCI) vs. Comprehensive income] The following items were
presented for the purpose of determining comprehensive income in 2025:

Profit for the year P1,000,000

Increase in revaluation surplus 500,000
Remeasurement loss of the net defined liability (100,000)
Translation loss of foreign operation (200,000)
Dividends declared (50,000)

Requirement: Compute for the following:

a. Net income
b. Other comprehensive income (OCI)
c. Comprehensive income
Statement of Changes in Equity

5. [Preparation of Statement of Changes in Equity] ABC Company’s equity as of December 31, 2024
consists of the following:

Share capital P1,000,000

Retained earnings 700,000
Revaluation surplus 300,000
Total shareholder’s equity 2,000,000

The following occurred during 2025 and 2026:

2025:
• ABC reported net income of P200,000 and total comprehensive income of P220,000.

2026:
• ABC reported other comprehensive income of P50,000 and total comprehensive income of
P350,000.
• ABC issued additional shares with an aggregate par value of P500,000.
• ABC declared dividends of P100,000.

Requirement: Prepare the comparative Statement of Changes in Equity for the year ended December 31,
2025 and 2026.

6. [Preparation of Statement of Retained Earnings] XYZ Company provided the following information
for the year ended December 31, 2025:

Retained earnings, January 1 P1,200,000

Overdepreciation in 2022 due to prior period error 100,000
Change from FIFO to weighted average – credit 150,000
Net income for current year 1,300,000
Retained earnings appropriated for treasury shares 300,000
Retained earnings appropriated for contingencies 800,000
Cash dividends paid to shareholders 500,000

Requirement: Prepare a Statement of Retained Earnings for 2025.

7. [Shareholders’ equity] The books of DEF Company in 2025 includes the following:

Share capital P100,000

Share premium 20,000
Retained earnings, appropriated 18,000
Retained earnings, unappropriated 42,000
Revaluation surplus 30,000
Remeasurement gain on net defined benefit liability 15,000
Cumulative net unrealized gain on FVOCI 23,000
Effective portion of losses on hedging
instruments in a cash flow hedge 10,000
Cumulative translation loss on foreign operation 5,000
Treasury shares, at cost 13,000

Requirement: Compute for the total shareholders’ equity.

Statement of Cash Flows

8. [Operating activities: Direct method] Pinnacle Company had the following information during 2025:

Accounts receivable, January 1, 2025 P600,000

Accounts receivable, December 31, 2025 400,000
Sales on account 8,000,000
Bad debts expense 200,000
Accounts payable, January 1, 2025 350,000
Accounts payable, December 31, 2025 200,000
Cost of sales 4,000,000
Increase in inventory 900,000

Operating expenses on accrual basis 1,220,000

Increase in accrued expenses 410,000
Decrease in prepaid expenses 390,000

Property, plant and equipment, January 1, 2025 1,800,000

Property, plant and equipment, December 31, 2025 2,700,000

Additional information:
• There were no write-offs of accounts receivable during the year.
• Equipment with an accumulated depreciation of P200,000 was sold during the year for
P120,000 to a gain on sale of P15,000.

Requirements: Compute for the following:

1. Cash receipts from customers.
2. Cash payments to suppliers.
3. Cash payments for operating expenses.
4. Cash payments for the acquisition of property, plant and equipment.
9. [Operating activities: Indirect method] Mr. Accounting Company has the following information as of
December 31, 2025:
Jan. 1 Dec. 31
Accounts receivable P4,000,000 P5,000,000
Allowance for bad debt (100,000) (250,000)
Prepaid rent 960,000 800,000
Accounts payable 1,700,000 2,200,000

Mr. Accounting reported net income of P2,200,000 for the year, after depreciation expense of
P50,000, gain on sale of equipment of P60,000, and restructuring and other provisions of P100,000.
None of the provisions recognized during the period affected cash.

Requirement: Compute for the cash flow from operating activities using the indirect method.

10. [Investing and financing activities] CPA Company had the following information for 2025:

a. Acquired equipment with a purchase price of P1,000,000 by paying 20% in cash and issuing a note
payable for the balance. There were no payments made on the note during the year.
b. Acquired land with fair value of P800,000 by issuing shares with aggregate par value of P600,000.
The excess is credited to share premium.
c. Sold equipment with cost of P500,000 for P400,000 one of its directors.
d. Borrowed P320,000 from a bank. Used the cash proceeds as follows: P200,000 for additional
working capital and P120,000 to settle cash dividends declared in 2025.
e. Settled an outstanding note payable by issuing shares with aggregate par value of P200,000. Share
premium resulted from the transaction amounted to P70,000.

Requirement: Compute for the net cash flows provided by (used in):
a. Investing activities
b. Financing activities
11. [Comprehensive] ABC Company provided the following comparative statement of financial position:

2025 2024
Cash and cash equivalents P500,000 P450,000
Accounts receivable, net of allowance 1,050,000 700,000
Inventory 1,300,000 1,200,000
Land 1,625,000 1,000,000
Property, plant and equipment 2,900,000 3,165,000
Accumulated depreciation (450,000) (500,000)
Patent 150,000 165,000
Accounts payable 1,350,000 1,000,000
Accrued expenses 1,300,000 1,050,000
Bonds payable 1,000,000 1,500,000
Share capital, P5 par 1,250,000 1,050,000
Share premium 1,165,000 850,000
Retained earnings 1,010,000 730,000

Additional information:
a. The net income for the current year was P1,095,000.
b. On February 2, the entity issued a 10% stock dividend to shareholders of record on January
15. The market price per share was P15.
c. On March 1, the entity issued 19,000 shares for land. The land had a fair value of P200,000.
d. The entity retired long-term bonds with face of P500,000. A gain on retirement of bonds was
reported in the income statement in the amount of P50,000.
e. The entity sold equipment costing P265,000, with carrying amount of P115,000, for P95,000
cash.
f. On September 30, the entity declared and paid a P2.00 per share cash dividend to 250,000
outstanding shares on August 1.
g. The entity purchased land for P425,000 cash.

Requirement: Prepare a statement of cash flows for the current year.