Adjusting Entries

c. Inventory 200 000

Accounts payable 200 000

d. Investment property 100 000

Unrealized gain 100 000

e. Depreciation Expense-Building 405 000

Accumulated Depreciation 405 000

f. Depreciation Expense-Equip 320 000

Accumulated Depreciation 320 000

g. Amortization Expense 30000

Accumulated Amortization 30000

h. Inventories 108 000

Interest Expense 108 000

i. Discount on Bonds Payable 932 240

Cash 932 240

Interest Expense 189 486

Discount on Bonds Payable

189 486

j. Utilities Expense 360 000

Accrued liabilities 360 000

k. Income tax Expense 719 854

Current tax Expense 719 854
 Colleagues Co.
Statement of Financial Statements
December 31, 20X1

ASSETS Notes
Current assets:
Cash and cash equivalents 4 6,017,760
Trade and other receivables 5 2,980,000
Inventories 2,608,000
Current tax asset 30,146
Total current assets 11,635,906

Noncurrent assets:
Investment in FVOCI securities 1,600,000
Investment property 2,900,000
Property, plant and equipment 6 5,925,000
Intangible assets 7 870,000
Other noncurrent assets 8 1,660,000
Total noncurrent assets 12,955,000

TOTAL ASSETS 24,590,906

LIABILITIES AND EQUITY

Current liabilities:
Trade and other payables 9 2,850,000
Current portion of loans payable - net 10 400,000
Total current liabilities 3,250,000

Noncurrent liabilities:
Noncurrent portion of loans payable - net 11 1,600,000
Bonds payable - net 12 7,257,246
Total noncurrent liabilities 8,857,246

TOTAL LIABILTIES 12,107,246

Equity:
Ordinary share capital 6,000,000
Retained earnings 6,223,660
Other components of equity 260,000
TOTAL EQUITY 12,483,660
 
TOTAL LIABILITIES & EQUITY 24,590,906

Colleagues Co.
Statement of Profit or Loss
For the Year Ended December 31, 20X1
NOTES
Sales 16,800,000
Cost of sales -7,200,000
Gross profit 9,600,000
Distribution costs 13 -2,424,000
Administrative expenses 14 -3,755,000
Finance costs -1,121,486
Unrealized gain on investment property 100,000
Profit before tax 2,399,514
Income tax expense -719,854
Profit for the year 1,679,660

Colleagues Co.
Statement of Comprehensive Income
For the Year Ended December 31, 20X1
NOTES
Profit for the year 1,679,660
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Investment in equity securities 260,000
Items that may be reclassified subsequently to profit or loss: -
Other comprehensive income for the year, net of tax 260,000

TOTAL COMPREHENSIVE INCOME FOR THE YEAR. 1,939,660

Note 4: Cash and cash equivalents

This line item consists of the following:
Cash on hand 450,000
Cash in bank 3,867,760
Money market placements 1,700,000
Cash and cash equivalents 6,017,760

Note 5: Trade and other receivables

This line item consists of the following:

Accounts receivable 3,900,000

Allowance for bad debts -920,000
Trade and other receivables 2,980,000

Note 6: Property, plant and equipment

This line item consists of the following:

Land 1,600,000
Building 4,500,000
Accumulated depreciation - Bldg. -855,000
Equipment 1,400,000
Accumulated depreciation - Equipt. -720,000
Property, plant and equipment 5,925,000

Note 7: Intangible assets

This line item consists of the following:

Patent 900,000
Accumulated amortization -30,000
Intangible assets 870,000

Note 8: Other noncurrent assets

This line item consists of the following:

Cash surrender value 860,000

Bond sinking fund 800,000
Other noncurrent assets 1,660,000

Note 9: Trade and other payables

This line item consists of the following:

Accounts payable (890K + 200K adj.) 1,090,000

Interest payable 1,040,000
Accrued liabilities (360K + 360K adj.) 720,000
Trade and other payables 2,850,000

Note 10: Loans payable

This line item consists of the following:

Current portion (2M x 1/5) 400,000

Non-current portion (2M x 4/5) 1,600,000
Total loans payable 2,000,000

Note 11: Bonds payable - net

This line item consists of the following:

Bonds payable 8,000,000

Discount on bonds payable -742,754
Bonds payable - net 7,257,246

Note 12: Distribution costs

This line item consists of the following:

Freight out 870,000

Sales commissions 504,000
Salaries of sales personnel 870,000
Utilities expense (360K x 1/2) 180,000
Distribution costs 2,424,000

Note 13: Administrative expenses

 This line item consists of the following:

Salaries of administrative personnel 2,820,000

Depreciation expense - Bldg. 405,000
Depreciation expense – Equip. 320,000
Amortization expense 30,000
Utilities expense (360K x 1/2) 180,000
Administrative expenses 3,755,000

Solutions:

Computation of Depreciation Expense:

e). Double declining balance rate = (450K ÷ 4.5M) = 10%

Depreciation, 20x1 = (4.5M – 450K) x 10% = 405,000

f). SYD denominator = 5 x [(5+1) ÷ 2] = 15

Depreciation, 20x0 = (1.4M – 200K) x 5/15 = 400,000
Depreciation, 20x1 = (1.4M – 200K) x 4/15 = 320,000

g). Computation of Amortization Expense:

Estimated useful life = 17 yrs.

Remaining legal life = 20 yrs. – 5 yrs. = 15 yrs. (shorter)
Amortization expense = 900,000 ÷ 15 x 6/12 = 30,000

i). Computation of Bonds Payable:

Principal 8,000,000 x 0.5921 4,730 800

Interest 800,000 x 2.9137 2,330,960
7,067,760

Date Payments Int. expense Amort. Present value

1/1/x1 7,067,760
12/31/x1 800,000 989,486 189,486 7,257,246

Computation of Adjusted Interest expense:

  Present value Effective int. rate Interest expense
h). Loans payable 2,000,000 12% 240,000
Capitalizable costs (1.8M ÷ 2) x 12%
= 108,000

(108,000)
Total 132,000

Bonds payable 7,067,608 14% 989,486

Adj. interest expense 1,121,486

Cash in Bank
Cash in Bank 4,800,000
Discount on BP -932,240
Adjusted Cash in
Bank 3,867,760

Retained Earnings
Retained Earnings 4,544,000
Profit 1,679,660
6,223,660

Inventories
Balance of
Inventory 2300000
Purchases 200000
Cost
Capitalized 108000
2608000