Required: Prepare Nikko's income statement and statement of retained earnings for the fiscal year ended Dec. 31, 20x7 and a statement of financial position as of Dec. 31, 20x7. Show all supporting journal entries and computations made during 20x7.

Problem 4 The Nikko Company's December 31, 20X6 statement of financial position follows: Assets Cash Inventory P 540,000 Prepaid rent 450,000 Machine 60,000 P500,000 Less: Accumulated depreciation (135,000) 365,000 P1.415.000 Accounts payable Liabilities and Equities P 400,000 Ordinary shares, P10 par 300,000 Additional paid-in capital 515,000 Retained earnings 200,000 P1.415,000 During 20X7, the following transactions occurred: 1. To avoid paying monthly rent of P5,000 on existing plant facilities, the company decided to buy a tract of land and construct a building of its own on it. On January 2, 20X7, Nikko exchanged 7,000 shares of its ordinary shares to acquire the land; the share was selling for P25 per share. Construction of the building also began on January 2, 20X7. At the time, Nikko borrowed funds by issuing a one-year, P500,000 note at 12% to help finance the project. The principal and interest on the note are due January 2, 20X8. Construction costs (paid in cash) that occurred evenly throughout the year totaled P700,000. The building was completed on December 30, 20X7 and the move-in to the new building was to occur during the next week. 2. On January 2, 20X7, Nikko exchanged its one existing machine plus P60,000 for a newer, similar machine with a fair value of P430,000. The exchange was with another company in the same industry. The new machine is to be depreciated using straight-line depreciation based on an economic life of 5 years and a residual value of P55,000. 3. Nikko uses a FIFO perpetual inventory system. Nikko sold P350,000 of its inventory for P800,000 cash, paid for its beginning accounts payable, and purchased P480,000 of inventory on account during the year. 4. On July 31, 26X7, Nikko declared and paid a P2.50 per share cash dividend to its shareholders. 5. Nikko is subject to a 30% income tax rate, and income taxes are accrued at year-end