Module in Fundamentals of ABM 2

1st Semester, SY 2020-2021

Lesson 1: Statement of Financial

Position
At the end of the lesson, the students will be able to:
1. understand the purpose of the Statement of Financial Position (SFP);
2. enumerate the basic elements of the Statement of Financial Position;
3. describe the nature of the accounts reported on the Statement of Financial Position;
4. prepare Statement of Financial Position using report format and account format; and
5. prepare a classified Statement of Financial Position.

STATEMENT OF FINANCIAL POSITION – Also known as the balance sheet. This statement
includes the amounts of the company’s total assets, liabilities, and owner’s equity which in totality
provides the condition of the company on a specific date. (Haddock, Price, & Farina, 2012)

The statement of financial position reflects the claim of the creditors and the owners on the
assets of the business. The claim of the creditors is technically called liabilities, while the claim of
the owners is referred as equity. This relationship is clearly depicted in the basic accounting
equation: asset is equal to liabilities plus capital.

Assets are resources controlled by the entity as a result of past events and from which
future economic benefits are expected to flow the entity. Assets are the resources owned by a
business. Thus, they are the things of value used in carrying out such activities as production,
consumption, and exchange. The common characteristic possessed by all assets is the capacity to
provide future services or benefits to the entities that use them.

Liabilities are resent obligations of the entity arising from past events, the settlement of
which are expected to result in an outflow from the entity of resources embodying economic
benefits. Liabilities are existing debts and obligations. These are claims of the creditors against
assets.

Equity is the residual interest in the assets of the entity after deducting all its liabilities. It is
the ownership claim on total assets. It is equal to total assets minus total liabilities. It is usually
referred as residual equity since the claims of creditors’ take precedence over ownership claims.

PERMANENT ACCOUNTS – As the name suggests, these accounts are permanent in a sense
that their balances remain intact from one accounting period to another. (Haddock, Price, & Farina,
2012) Examples of permanent account include Cash, Accounts Receivable, Accounts Payable, Loans
Payable and Capital among others. Basically, assets, liabilities and equity accounts are permanent
accounts. They are called permanent accounts because the accounts are retained permanently in
the SFP until their balances become zero. This is in contrast with temporary accounts which are
found in the Statement of Comprehensive Income (SCI). Temporary accounts unlike permanent
accounts will have zero balances at the end of the accounting period.

CONTRA ASSETS – Contra assets are those accounts that are presented under the assets
portion of the SFP but are reductions to the company’s assets. These include Allowance for Doubtful
Accounts and Accumulated Depreciation. Allowance for Doubtful Accounts is a contra asset to
Accounts Receivable. This represents the estimated amount that the company may not be able to
collect from delinquent customers. Accumulated Depreciation is a contra asset to the company’s
Property, Plant and Equipment. This account represents the total amount of depreciation booked
against the fixed assets of the company.

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Report Form – A form of the SFP that shows asset accounts first and then liabilities and
owner’s equity accounts after. (Haddock, Price, & Farina, 2012) The balance sheet shown
earlier is in report form.

Account Form – A form of the SFP that shows assets on the left side and liabilities and
owner’s equity on the right side just like the debit and credit balances of an account.
(Haddock, Price, & Farina, 2012)

Current Assets – Assets that can be realized (collected, sold, used up) one year after
year-end date. Examples include Cash, Accounts Receivable, Merchandise Inventory,
Prepaid Expense, etc.

Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one year
after yearend date. Examples include Notes Payable, Accounts Payable, Accrued Expenses
(example: Utilities Payable), Unearned Income, etc.

Current Assets are arranged based on which asset can be realized first (liquidity). Current
assets and current liabilities are also called short term assets and shot term liabilities.

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Noncurrent Assets – Assets that cannot be realized (collected, sold, used up) one year
after yearend date. Examples include Property, Plant and Equipment (equipment,
furniture, building, land), Long Term investments, Intangible Assets etc.

Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue) within
one year after year-end date. Examples include Loans Payable, Mortgage Payable, etc.

Noncurrent assets and noncurrent liabilities are also called long term assets and long term
liabilities.

The main difference of the Statements of the two types of business lies on the
inventory account. A service company has supplies inventory classified under the current
assets of the company. While a merchandising company also has supplies inventory
classified under the current assets of the company, the business has another inventory
account under its current assets which is the Merchandise Inventory, Ending.

THE ASSETS

An entity shall present current and noncurrent assets as separate classifications on

the face of its balance sheet.

Current Assets
Current assets are cash and other resources that are reasonably expected to be
realized in cash or sold or consumed in the business within one year of the balance sheet
date or the company’s operating cycle, whichever is longer. For example, accounts
receivable is included in current assets because they will be realized in cash through
collection within one year. In contrast, a prepayment such as supplies is a current asset
because it is expected of its expected use or consumption in the business within one year.
The operating cycle of a company is the average time that is required to go from
cash to cash in producing revenues. It is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents. When the organization’s
normal operating cycle is not clearly identifiable, its duration is assumed to be twelve
months.
In service enterprise, it is customary to recognize four types of current assets: (1)
cash, (2) marketable securities such as government bonds held as a temporary
(short-term) investment, (3) receivables (notes receivable, accounts receivable and
interest receivable), and (4) prepaid expenses (insurance and supplies). These items are
listed in the order of liquidity, that is, in the order which they are expected to be
converted into cash.

Composition of Current Assets

1. Cash and Cash Equivalents

Cash compromises cash on hand and demand deposit.
a. Money. This includes undeposited cash collection in form of bills and coins.
Money may be on hand (cash on hand) or in bank (cash in bank).
b. Money Substitutes. These are in form of customer’s checks, bank drafts,
money orders, manager’s checks, cashier checks or traveler’s checks. Money
substitutes are included as part of cash and cash equivalent account if they
are acceptable for immediate credit.

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c. Current working funds. These are funds set aside to meet current needs like
petty cash fund, interest fund, dividend fund, and payroll fund. These are
included if they are maintained for the current operation of the business.
Cash equivalents are short term liquid investments that are readily convertible to
known amounts of cash and subject to an insignificant risk of changes in value. An
investment qualifies as a cash equivalent only when it has a short-term maturity of three
months or less from the date of acquisition. Examples: three-month time deposit,
three-month money market placement, three-month BSP treasury bill, and five-year
treasury bill acquired three months before the maturity date.

2. Trade and Other Receivables

Receivables are broadly classified as trade receivable and nontrade receivable.

a. Trade receivable arises from the ordinary course of business transactions and
are shown as current assets if collectible within one year or within the normal
operating cycle of the business. The common examples of trade receivables
are accounts receivable and notes receivable.
b. Nontrade receivable, on the other hand, are claims that arise not from the
ordinary course of the business operations. Nontrade receivables will include
advances to officers, employees, directors or shareholders; advances to
affiliates; claims against common carriers for damages; and advance to
suppliers for merchandise.

3. Inventories
Inventories are assets on the face of the business that are held for sale in the
ordinary course of business, in the process of production for such sale, or in
form of materials or supplies to be consumed in the production process or in the
rendering of services.

Cost of inventories shall comprise:

a. Cost of purchase
i. Purchase price
ii. Add Import duties and other taxes, transport and handling, and other
costs directly attributable to the acquisition of finished goods,
materials and services.
iii. Less trade discounts, rebates, and other similar items
The cost of goods purchased is computed as follows:
b. Cost of conversion
i. Direct materials
ii. Direct labor
iii. Manufacturing overhead
c. Other cost incurred in bringing the inventories to their present location and
condition

Merchandising or trading business entities generally label their inventories as

merchandising inventory. Manufacturing concerns label their inventories as
finished goods, goods in process, and raw materials inventory.

4. Prepaid Expenses
Prepaid expense is a one-line item classification that includes all prepayments
made that are expected to be consumed within one year from the date of the
statement of financial position. Examples of prepaid expenses are prepaid rent,
prepaid advertising, prepaid insurance, and unused office and store supplies.

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Noncurrent Assets

Assets that do not meet any of the criteria required for current assets are classified
as noncurrent assets. The term “noncurrent” is use to include tangible, intangible and
financial assets of a long-term nature. It does not prohibit the use of alternative
descriptions as long as the meaning is clear.

Composition of Noncurrent Assets

The noncurrent assets section of the statement of financial position shall include
property, plant and equipment; long-term investment; intangibles; and other noncurrent
assets.
1. Property, Plant and Equipment (PPE)
PPE are tangible items that are held for use in the production or supply of goods or
services for rentals to others, or for administrative purposes; and are expected to
be used during more than one period. PPE are tangible resources of relatively
permanent nature that are used in business and not intended for sale. This
category includes land, buildings, machinery and equipment, delivery equipment
and furniture and fixtures. Assets subject to depreciation should be reported at cost
less accumulated depreciation.

Measurement of PPE at Recognition. The cost of an item of PPE comprises of:

a. Its purchase price, including import duties and nonrefundable purchase taxes,
after deducting trade discounts and rebates;
b. Any cost directly attributable to bringing the asset to the location and conditions
necessary for it to be capable of operating in the manner intended by
management; and
c. The initial estimate of the cost of dismantling and removing the item and
restoring the site on which it is located.
Examples of directly attributable costs;
● Cost of employee benefits arising directly from the construction or acquisition
of the item of PPE
● Cost of site preparation
● Initial delivery and handling costs
● Installation and assembly costs
● Cost of testing whether the asset is functioning properly
A class of property, plant and equipment is a grouping of assets of similar nature
and use in an entity’s operation. The following are examples of separate classes:
a. Land
b. Land and buildings
c. Machinery
d. Ships
e. Aircraft
f. Motor vehicles
g. Furniture and fixtures
h. Office equipment

2. Long-term Investments
Long-term investments are assets held by an entity intended to accumulate wealth
or resources by means of capital distribution in form of royalties, interest,

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dividends, rentals, capital appreciation, or other benefits obtained through trading

relationships with the intention of holding the investments for more than one year.
Like current assets, long-term investments are resources that can be realized in
cash. However, the conversion into cash is not expected within one year or the
operating cycle, whichever is longer. In addition, long-term investments are not
intended for use or consumption within the business. This category, often just called
“investments,” normally includes stocks and bonds of other corporations.

Examples:
a. Sinking fund
b. Plant expansion fund
c. Investment in bonds
d. Investment in stocks
e. Cash surrender value of life insurance
f. Investment in subsidiary
g. Investment property
h. Investment in joint control entity

3. Intangibles
Intangible asset is defined as an identifiable nonmonetary asset without physical
substance. Intangible assets are noncurrent resources that do not have physical
substance. Intangible assets are recorded at cost, and this cost is expensed over
the useful life of the intangible asset. Intangible assets include patents, copyrights,
and trademarks or trade names that give the holder exclusive right of use for
specified period of time. Their value to a company is generally derived from the
rights or privileges granted by governmental authority.

Examples:
a. Copyrights
b. Patent
c. Licenses and franchise
d. Brand names
e. Masthead and publishing titles
f. Computing software
g. Recipes, formulae, modes, designs and prototypes
h. Industrial property rights, service and operating rights

4. Other Noncurrent Assets

This is the line item that presents noncurrent assets not falling under the
classification of property, plant and equipment; long-term investment; or
intangibles. Examples of other noncurrent assets are abandoned property,
long-term refundable deposits, or long-term advances to employees or officers.

LIABILITIES

Liability is a present obligation of the entity arising from past events the settlement
of which is expected to result in an outflow from the entity of resources embodying
economic benefits.
Characteristics of Liabilities:
a. It is a present obligation of an entity, and not a future commitment.

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b. It is legally enforceable as a consequence of a binding contract or statutory

requirements, or when asset is delivered.
c. It arises from business practice, customs, and a desire to maintain good business
relations or act in equitable manner.
d. The settlement of the obligation usually involves giving up of entity’s resources.

Current Liabilities

Listed first in the liabilities and owner’s equity section of the balance sheet are
current liabilities. Current liabilities are obligations that are reasonably expected to be paid
from existing current assets or through the creation of another current liabilities. Current
liabilities include debts related to the operating cycle such as accounts payable and wages
and salaries payable, and other short-term debts, such as bank loans payable, interest
payable, taxes payable and current maturities of long-term obligations.
The arrangement of items within the current liabilities section has evolved through
custom rather than from a prescribed rule. Notes payable is usually listed first, followed by
accounts payable. Other items are then listed in any order.
A liability shall be classified as current when it satisfies any of the following criteria:
a. It is expected to be settled in the entity’s normal operating
b. It is held primarily for the purpose of being traded.
c. It is due to be settled within twelve months after the balance sheet date.
d. The entity does not have an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
Examples of current liabilities
a. Trade and other payables
b. Short term bank loan
c. Warranty payable
d. Income taxes payable
e. Current portion of noncurrent financial liabilities
f. Short-term loans
g. Dividends payable

Users of financial statements look closely at the relationship between current assets
and current liabilities. This relationship is important in evaluating a company’s liquidity –
its ability to pay obligations that are expected to become due within the next year or
operating cycle. When current assets exceed current liabilities at the balance sheet date,
the likelihood for paying the liabilities is favorable. When the reverse is true, short term
creditors may not be paid, and the company may ultimately be forced into bankruptcy.

Noncurrent / Long-term Liabilities

Obligations expected to be paid after one year or an operating cycle, whichever is

longer, are classified as long-term liabilities. Liabilities in this categeory include bonds
payable, mortgages payable, long-term notes payable, lease liabilities, and obligations
under employee pension plans. Many companies report long-term debt maturing after one
year as a single amount in the balance sheet and show the details of the debt in the notes
that accompany the financial statements.

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EQUITY

Equity is the residual interest in the assets of the entity after deducting all its
liabilities. For sole proprietorship, the equity section of the owner is commonly labeled as
Owner’s Capital or Owner’s Equity. In case the business is considered a partnership, the
equity of the partners is generally labeled as Partners’ Equity and there is a capital
account for each partner.
The equity section of a corporate entity is usually labelled as Stockholders’ or
Shareholders’ Equity. For a corporation, owner’s equity is divided into two accounts –
Capital Stock and Retained Earnings. Investment of assets in the business by the
stockholders are recorded by debiting an asset account and crediting the Capital Stock
account. Income retained for use in the business is recorded in the Retained Earnings
account. These two accounts are combined and reported as stockholder’s equity on the
balance sheet.
Although equity is defined as a residual interest, it may be subclassified in the
statement of financial position of the corporate entity. For example, a separate
presentation may be made for funds contributed by shareholders, retained earnings,
reserves representing appropriation for retained earnings, and reserves representing
capital maintenance adjustments.
Classified Statement of Financial Position in report form:

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EXERCISES:
1. If assets are Php17,000 and owner's equity is Php10,000, liabilities are ______.

2. At the end of the first month of operations for Juana’s Delivery Service, the business
had the following accounts: Accounts Receivable, Php1,200; Prepaid Insurance,
Php500; Equipment, Php36,200 and Cash, Php40,650. On the same date, Juana owed
the following creditors: Nena’s Supply Company, Php12,000; Maria’s Equipment,
Php9,500.The current assets for the Juana’s Delivery Service are _________.

3. At the end of the first month of operations for Juana’s Delivery Service, the business
had the following accounts: Accounts Receivable, Php1,200; Prepaid Insurance,
Php500; Equipment, Php36,200 and Cash, Php40,650. On the same date, Juana owed
the following creditors: Nena’s Supply Company, Php12,000 (due in 6 months);
Maria’s Equipment, Php9,500 (due after years). Current liabilities are _________.

4. If during the year total assets increase by Php75,000 and total liabilities decrease by
Php16,000, by how much did owner's equity increase/decrease?

5. Prepare a Statement of Financial Position using the following accounts (one in report
form and one in account form):
Cash 5,000
Loans Payable 77,500
Accounts Receivable 2,600
Supplies 2,300
Equipment 17,000
Owner’s equity 40,000
Accounts Payable 22,400
Building 113,000

PROBLEM 1
Friendly Convenience Store is managed by Juana Dela Cruz.

A. Juana asked you to determine the balance of her cash account as of December 31,
2018. You determined the following:
1. She kept some cash in the store as change fund (sukli). The cash count revealed 3
pieces of 100 peso bill, 5 pieces of 50 peso bills, 5 pieces of 20 peso bills, 5 pieces
of 10 peso coins, 10 pieces of 5 peso coins, 10 pieces of 1 peso coins, and 25
pieces of 25 centavo coins.
2. Two of the regular customers gave Juana the following checks in payment of debts:
a. P1540 check dated December 31, 2018
b. P2,432 check dated January 3, 2019
3. There are two bank accounts in the name of the store with the following balances:
a. Balance of the saving accounts on December 31, 2018 according to the
passbook is P26,780
b. A time deposit certificate for P100,000 for 90-days.

Report to Juana Dela Cruz the balance of the cash and cash equivalents accounts of
Friendly Convenience Store.

B. Juana paid premium of P2,500 for one-year fire insurance in the name of the store
on October 1, 2018. How much should prepaid insurance be on December 31,
2018?

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C. On January 1, 2017, Juana purchased an electronic cash register to be used in the

Friendly Convenience Store. The cash register was purchased at a cost of P15,000.
Juana depreciates the cash register over five years. Determine the following:
a. Equipment
b. Annual Depreciation
c. Accumulated Depreciation as of December 31, 2018
d. Net book value of Equipment as of December 31, 2018.

D. On November 15, 2018, Juana Dela Cruz purchased five sacks of rice at P1,800 per
sack. The credit term is 2/10,n/30. Determine how much Juana should pay given
the following payment dates:
a. November 25, 2018
b. December 15, 2018
E. Read the excerpt of the Promissory Note below

Answer the following questions:

1. Who will record the Notes Payable?
2. Who will record the Notes Receivable?
3. Compute for the payment due on November 30, 2018 and December 30, 2018.
4. Determine the balance of Notes Payable as of December 31, 2018.
F. Juana hired Elene Reyes as storekeeper with salary of P400 per day. Elena is paid
every Saturday for work rendered during the week. Sunday is her off-day.
December 32, 2018 falls on a Thursday. Determine the balance of Salaries Payable
to be reported on the Store’s SFP as of December 31, 2018.
G. Pedro Benites, a neighbor of Juana, operates a coffee vending machine business.
On October 1, 2018, he entered in a contract with Juana to rent a small space on
the counter-top of the Store where he can put his coffee vending machine. The rent
is P500 per month. Pedro paid six months in advance rent on October 1, 2018. How
much should be reflected as Unearned Rent Income on the Store’s SFP as of
December 31, 2018?
H. In order to construct a store, Juana borrowed P50,000 from Universal Bank and
P25,000 from United Bank. Terms of the loans are as follows:
Universal Bank: The bank requires Juana to pay interest of 7% payable monthly.
The principal is payable on October 1, 2020.
United Bank: The bank requires Juana to pay five monthly installment of P5,000
plus interest on the unpaid balance. The loan was taken on November 1, 2018 and
first monthly installment id due on November 30, 2018.
Which of the two loans should be reported as Long-Term Liability on the Store’s
calendar year 2018 SFP?

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PROBLEM 2

You were hired by Mr. Juan Dela Cruz to prepare his sari-sari store’s Statement of
Financial Position. In order to prepare the statement, you identified the following assets
and liabilities of Mr. Dela Cruz:
1. His sari-sari store has cash deposited in a bank account amounting to
P50,000
2. His sari-sari store had a lot of uncollected sales from customers amounting to
P75,000
3. The total amount of merchandise left inside the store is P30,000
4. He already paid one year’s rent in advance amounting to P12,000
5. The value of all the company’s furniture amounted to P100,000
6. He bought merchandise from his supplier amounting to P25,000 and the
supplier agreed that payment can be made 2 months after year-end
7. SSS, Philhealth and Pag-ibig Payables for his one employee totaled P5,000
8. The sari-sari store had outstanding liabilities to utility companies amounting
to P3,000
9. He had a loan from the bank amounting to P50,000 to be paid in 3 years
Prepare a Statement of Financial Position for the company (one in report form and one in
account form)

PROBLEM 3
On February 1, 2014, Mira Delamar opened a store that sells school supplies. Her main
customers are the students and teacher of Happy Student School that is situated in from
of her store. Mira wanted to know the financial position of Mira’s Store. Mira knew you
were studying accounting so she asked for your help.

The following information were made available to you:

1. To start her business, Mira opened a checking account in the name of Mira’s Store.
The statement of the account from bank shows that the checking account has a
balance of P31,535 as of December 31, 2014.
2. Mira told you that she keeps P1,000, in small bills and coins, in her store which she
uses as a change fund.
3. As of December 31, 2014, cash on hand from sales and collections for the day
amounted to P12,000. This does not include Mira’s change fund.
4. Mira showed you a delivery receipt for P575. The receipt dated December 29, 2014
showed that manila papers and color markers were delivered to a Ms. Rebecca Di
who is a grade school teacher in Happy Students School. Ms. Di noted on the
delivery receipt that she will pay Mira on January 15, 2015.
5. Mira’s Store is located on the ground floor of a commercial building. The commercial
unit costs her P5,00 per month for rent. As of December 31, 2014, Mira’s store has
a remaining one month advance rent with the landlord.
6. Mira purchased shelves and cabinets amounting to P30,000 to be used as display
racks and storage for her store. The shelves and cabinets are expected to be used
in the store for 5 years. Mira started using the shelves and cabinets on December 1,
2014.
7. After closing the store on December 31, 2014, Mira counted the unsold
merchandise inside the store. Mira does not have any other store space except for
the store premises. Based on Mira’s count, the remaining unsold merchandise costs
P15,345.
8. Mira showed you a folder she kept her unpaid receipts and bills. You noted the
following:
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a. A sales invoice dated December 25, 2014 from Long Lasting Ballpoint Pens
Incorporated amounting to P2,645. The invoice term is 30 days.
b. A sales invoice from Papier Paper Company dated December 15, 2014 for
P5,465. The payment terms on the invoice is 40 days.
c. A Meralco bill for electricity consumption from December 1-31 for P3,400.
The bill is payable on January 15, 2015.
d. December PLDT bill for P600. The bill is payable on January 17, 2015.
e. Mira hired Emily to help her inside the store. Emily’s salary is P500/day.
Emily’s wage were paid on December 30, 2014, for work rendered until
December 29. Her pay for December 30 and 31 will be included in her
January wages.
9. Mira showed you an official receipt for P1,395. She told you that this is a down
payment from Ms. Benny Ling, a grade 5 teacher in Happy Students School. Ms.
Ling ordered green, red and blue poster pain for her students. The total price of the
order was P2790. According to their agreement, Mira will deliver the paints on
January 3, 2015.
10.On December 31, 2014, Mira borrowed P23,000 from her bank. She took advantage
of the bank’s special terms for small entrepreneurs. She signed a promissory note
for her loan. The principal is payable on December 30, 2016. The interest is payable
monthly beginning January 31, 2015.
11.Mira started her business depositing P30,000 to open the checking account. On
October 15, 2014, the business is in need of additional cash so Mira deposited
P5,000 to the checking account. Mira also withdraw P15,000 from the business over
the year.

Requirements:

1. Prepare a classified Statement of Financial Position for Mira’s Store as of December

31, 2014.

PROBLEM 4

The adjusted trial balance for Bel-Air’s Bowling Alley at December 31, 2019, contains the following
accounts.

Instructions:

1. Prepare a classified statement of financial position; assume that ₱693,600 of the mortgage
payable will be paid in 2020.

PROBLEM 5

The following items were taken from the financial statements of J. Pineda Company. (All
amounts are in thousands.)

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Instructions: Prepare a classified balance sheet in good form as of December 31, 2017.

PROBLEM 6
Izzy Merchandising provided the following accounts appearing on its ledger as of December 31,
2018:

Prepare the classified statement of financial position as of December 31, 2018.

PROBLEM 7

The following account balances were provided by Nicanor Company as of December 31, 2018:

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Performance Name Grade Level 12 Score

Task
No. 1 Section Learning Area Fundamentals of ABM 2
1st Semester
2020-2021
Date Topic Statement of Financial
Position

PROBLEM 1
On December 31, 2018, the bookkeeper of Jenny Merchandising provided the following information:

Prepare the statement of financial position of Jenny Merchandising as of December 31, 2018.

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BROADENING YOUR PERSPECTIVE

Financial Reporting Problem: Apple Inc.

The financial statements of Apple Inc. are presented in Appendix A at the end of this
textbook (Accounting Principles 12th Edition by Weygandt, Kimmel and Kieso). Instructions
for accessing and using the company’s complete annual report, including the notes to the
financial statements, are also provided in Appendix A.
Answer the questions below using Apple’s Consolidated Balance Sheets.
1. What were Apple’s total current assets at September 28, 2013, and September 29,
2012?
________________________________________________________________________
________________________________________________________________________
2. Are assets that Apple included under current assets listed in proper order? Explain.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3. How are Apple’s assets classified?
________________________________________________________________________
________________________________________________________________________
4. What was Apple’s “Cash and cash equivalents” at September 28, 2013?
________________________________________________________________________
________________________________________________________________________
5. What were Apple’s total current liabilities at September 28, 2013, and September 29,
2012?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

Comparative Analysis Problem: PepsiCo, Inc. vs. The Coca-Cola Company

PepsiCo, Inc.’s financial statements are presented in Appendix B. Financial statements of
The Coca-Cola Company are presented in Appendix C. Instructions for accessing and using
the complete annual reports of PepsiCo and Coca-Cola, including the notes to the financial
statements, are also provided in Appendices B and C, respectively.

Instructions:

A. Based on the information contained in these financial statements, determine each

of the following for PepsiCo at December 31, 2013, and for Coca-Cola at December
31, 2013.

PepsiCo Coca-Cola

Total current assets

Net amount of property,

plant, and equipment
(land, buildings, and
equipment)

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Module in Fundamentals of ABM 2
1st Semester, SY 2020-2021

Total current liabilities

Total equity

B. What conclusions concerning the companies’ respective financial positions can be

drawn?

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CRITICAL THINKING

Whitegloves Janitorial Service was started 2 years ago by Jenna Olson. Because business
has been exceptionally good, Jenna decided on July 1, 2017, to expand operations by
acquiring an additional truck and hiring two more assistants. To finance the expansion,
Jenna obtained on July 1, 2017, a $25,000, 10% bank loan, payable $10,000 on July 1,
2018, and the balance on July 1, 2019. The terms of the loan require the borrower to
have $10,000 more current assets than current liabilities at December 31, 2017. If these
terms are not met, the bank loan will be refinanced at 15% interest. At December 31,
2017, the accountant for Whitegloves Janitorial Service Inc. prepared the balance sheet
shown below

Jenna presented the balance sheet to the bank’s loan officer on January 2, 2018, confident
that the company had met the terms of the loan. The loan officer was not impressed. She
said, “We need financial statements audited by a CPA.” A CPA was hired and immediately
realized that the balance sheet had been prepared from a trial balance and not from an
adjusted trial balance. The adjustment data at the balance sheet date consisted of the
following.

1. Unbilled janitorial services performed were $3,700.

2. Janitorial supplies on hand were $2,500.
3. Prepaid insurance was a 3-year policy dated January 1, 2017.
4. December expenses incurred but unpaid at December 31, $500.
5. Interest on the bank loan was not recorded.

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Module in Fundamentals of ABM 2
1st Semester, SY 2020-2021

6. The amounts for property, plant, and equipment presented in the balance sheet were
reported net of accumulated depreciation (cost less accumulated depreciation). These
amounts were $4,000 for cleaning equipment and $5,000 for delivery trucks as of
January 1, 2017. Depreciation for 2017 was $2,000 for cleaning equipment and
$5,000 for delivery trucks.

Instructions:

(a) Prepare a correct balance sheet.

(b) Were the terms of the bank loan met? Explain.

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