Lf CHAPTER 36 gINGLE ENTRY Basic problems problem 36-1 (IAA) Console Company reported capital at P1,700,000 on January 1 and P2,400,000 on December 31, During the current year, the owner withdrew merchandise with carrying amount of P100,000 and sale value of P180,000. The owner also paid a P 1,000,000 note payable of the business with interest of 12% for six months with a check drawn ona personal checking account. What amount was reported as net income or loss for the current year? 260,000 income . 260,000 loss 180,000 income d. 180,000 loss ese Solution 36-1, Answer b Capital - December 31 2,400,000 Add: Withdrawals - merchandise at carrying amount __ 100,000 Total 2,500,000 Less: Capital - January 1 1,700,000 Additional investment 1,060,000 2,760,000 Net loss (260,000) Payment of note payable out of personal checking account 1,000,000 Interest (1,000,000 x 12% x 6/12) 60,000 Total additional investment 1,060,000, wn a 3 Scanned with CamScannerXN Problem 36-2 (AICPA Adapted) At year-end, Melissa Company showed shay Teholderss a 5,000,000. ‘Wty or The share capital of P3.000,000 remained “nchangeg dur year. "8 the Transactions during the year which affected the CqUity Were. * Anadjustment of retained earnings for overdepreciation in prior year * Gain on sale of treasury shares 90,099 * Dividend declared, of which P400,000 was paig 300.095 * Net income for current year mn . 0 What amount was reported as retained earnings on January , a. 1,400,000 : b. 1,700,000 c. 1,200,000 d. 1,600,000 Solution 36-2. Answer a Retained earnings - January | (SQUEEZE) 1,400,009, Net income 800,009 Prior period error - overdepreciation 00009 Total 2,300,000 Dividend declared (600,000) ——) Retained earnings - December 31 1,700,000 =— The beginning balance of tetained earings is “squeezed” by working back from the ending balance, Total shareholders’ equity - December 31 5,000,000 Less: Share capital 3,000,000 Share premium from treasury shares 300,000 3,300,000 Retained earnings - December 31 1,700,000 560 Scanned with CamScannerf an 330A) vl pro : : weve ‘ompany provided the following data at year-end: ne? 2020 2021 ayes P100 par value 5,000,000 5,500,000 ee emi 1,500,000 2,500,000 wi red earnings 3,000,000 4,500,000 purine 2021, the entity declared and paid cash dividend of 1.900.000 and also declared and issued a share dividend. ‘there were NO other changes in equity during 2021. What amount was reported as net income for 2021? 3, 3,000,000 5, 2,500,000 ¢. 1,000,000 4. 4,000,000 solution 36-3 Answer d inorease in share capital (5,500,000~5,000,000) 500,000 inerease in share premium (2,500,000 ~ 1,500,000) 1,000,000 Share dividend 1,500,000 Retained earnings — December 31, 2021 4,500,000 Share dividend 1,500,000 Cash dividend 1,000,000 Total 7,000,000 Retained earnings ~ December 31, 2020 (3,000,000) Net income for 2021 0 Scanned with CamScannerGN Problem 36-4 (LAA) . Trend Company provided the following information for th Ie year: Uren t loss , Total assets on December 31 3 100.009 Share capital on December 31 as Share premium ‘spo Dividends declared / Sony Debt-to-equity ratio (liabilities divided by equity) 00,099 Soy, . What amount of retained earnings was reported on January b a. 1,100,000 b. 1,300,000 c. 500,000 d. 600,000 Sohuion 36-4 Answer b Shareholders’ equity (3,000,000 / 150%) 2,000,009 Contributed capital ontributed capi sono Retained earnings - December 31 500,09 0.009 Share capital 1,000,000 Share premium 500/000 Contributed capital 41.500,000 ‘on! iP 200,000 Total liabilities 1,000,000 50% _ Shareholders’ equity 2,000,000 100% Total assets 3,000,000 150% Retained earnings - January | (SQUEEZE) 1,300,000 Net loss ( 100,000) Dividends declared (_700'000) Retained earnings - December 3] Scanned with CamScanneroie 36 -5 (AICPA Adapted) company reported the following increases in account balances em the current year: gun 8,900,000 asses os 2,700,000 stilt al : 6,000,000 mre capil a ere prem 600,000 xcel fora P1,300,000 dividend payment and the year's earnings, there were nO changes in retained earnings for the year. Whatamount was reported as net income for the current year? 400,000 900,000 1,300,000 a b. ¢. 1,700,000 Solution 36-5 Answer b Effect on equity Increase in assets 8,900,000 increase in liabilities 2.700,000) Net increase in equity. 6,200,000 Add: Dividend 1,300,000 Total 7,500,000 Less: Increase in share capital 6,000,000 Increase in share premium 600,000 6,600,000 Net income 900,000 Increase in asset will increase equity and decrease in asset will decrease equity. Increase in liability will decrease equity and decrease in liability will increase equity. 563 Scanned with CamScanner™ al Habit Problem 36-6 (IAA) _ y reported beginning and ending tot Faio (00 and PI, 000,000, respectively, year-end, owners’ equity was P2,600,000 and total 720.000 larger than at the beginning of the year. ASsety Ste The new share capital issued exceeded dividends Paid by Pag 4 What amount was reported as net income or loss for the . 00, . Yea, a. 280,000 income Ir b. 280,000 loss c. 200,000 loss d. 40,000 income Solution 36-6 Answer c Incredse in assets 20000 Increase in liabilities (1,000,000 — 840,000) , ( 160,09) Increase in owners* equity 27 Excess of share capital issued over dividends paid (240,000) Net loss. Te (200,009) Problem 36-7 (IAA) = Sunshine Company had total assets of P4.000,000 equity of P2,000,000 at the beginning of the year, During the year, assets increased by PS00,000 and liabilities d by P800.000. ean What amount was Teported as shareholders’ equity at the end of the ‘year? a. 3,300,000 b. 2,300,000 c. 1,000,000 d. 1,300,000 Solution 36-7 Answer a and shareholders’ Effect on equity Increase in assets 500,000 Decrease in liabilities 800,000 Net increase in equity 1,300,000 Shareholders’ equity beginning 2,000,000 Shareholders? equity - ending 3,300,000 564 Scanned with CamScannerom 36-8 (IAA) ry 1, Racel Company showed total assets of P5,000,000, a bilities of P2,000,000 and contributed capital of P2,000,000. ms the current year, the entity issued share capital of P500,000 par paring a premium of P300,000, valve at sje 250.000 was paid on December 31. on December 31, total assets amounted to P7,500,000 and total abilities amounted to P3,200,000. What amount was reported as net income for the current year? a. 1.750,000 1,000,000 <, 730,000 g 500,000 Solution 36-8 Answer c January 1 December 31 Total assets 5,000,000 7,500,000 Total liabilities 2,000,000 3,200,000 Equity 3.000.000 4.300.000 Increase inequity (4,300,000 — 3,000,000) \ 300, 000 Dividend paid Total Issue price of share capital at a premium Net income Share capital at par Share premium Total issue price Scanned with CamScannerNS Problem 36-9 (PHILCPA Adapted) Marbel Company provided the following information e T the ye Cash balance, January | : 5 ar, Accounts receivable, January 13069 Collections from customers 7 iadtog Shareholders’ equity, January | ‘seg Total assets, January | “eq to Total assets, December 3 aan Cash balance, December 31 Vp 0 Accounts receivable, December 31 {Sion Total liabilities, December 31 ong What amount was reported as net income for the Current year? a. 490,000 b. 150,000 ec. 110,000 d. 70,000 Solution 36-9 Answer c Total assets - December 31 880,009 Total liabilities ~ December 31 390,000 Shareholders’ equity ~ December 31 490,000 Shareholders’ equity - January 1 380,000 Net income for current year 110,000 Since there are no dividends declared and Issuance of share capital during the year, the net increase in shareholders? equity is already the net income for the current year, Scanned with CamScannerf HAPTER 37 iNGLEENTRY comprehensive problems problem 37-1 (IAA) patel Company disclosed the following changes: cash P 480,000 decrease Ceeounts receivable 300,000 increase Acrghandise inventory 3,100,000 increase Accounts payable 420,000 increase puring the year, the owner borrowed P4,000,000 from the bank and paid off of P3,000,000 and interest of P240,000. Interest of P100,000 is accrued on December 31. There was no interest payable at the beginning of the year. Inthe current year, the owner transferred certain trading securities to the business and these were sold for P1.500,000 to finance purchase ofmerchandise. The owner made weekly withdrawals of P10,000. What amount was reported as net income for the current year? a. 1,520,000 b. 1.920.000 c 1,400,000 d@ 420,000 Solution 37-1 Answer d Effeet on equity Increase Decrease Decrease in cash 480,000 Increase in accounts receivable 300,000 Increase in inventory 3,100,000 Increase in accounts payable 420,000 Increase in loan payable (4,000,000 — 3,000,000) 1,000,000 Increase in accrued interest payable 100,000 100,000 2,000,000 Net increase in equity (3,400,000 —2,000,000) 1,400,000 Withdrawals (10,000 x 52 weeks) 520,000 \dditional investment (sale of securities) (1,500,000) Net income 420,000 567 Scanned with CamScannerProblem 37-2 (PHILCPA Adapted) A . orted the following ch, adillo Company reported the following changes be balances for the current year, except is a all lai . the earnings: neg Der, (Deere Cash Accounts receivable, net 5 Inventory 1s Investments. ( Son ye! Accounts payable ( 400 92) Bonds payable omy Share capital 1ooo.o90 Share premium Ioan There were no entries in the retained eamings account EXcept for income and a dividend declaration of P300,000 which was paid in . le current year. What amount was reported as net income for the Current year? a. 1,300,000 b. 1,600,000 c. $00,000 d. 200,000 Solution 37-2 Answer c Effect on equity Increase in cash 800,000 Increase in accounts receivable 250,000 Increase in inventory 1,250,000 Decrease in investments (500,000) Decrease in accounts payable 400,000 Increase in bonds payable (900.000) Net increase in equity 1,300,000 Add: Dividend declared 300,000 Total 1,600,000 Less: Increase in share capital 1,000,000 Increase in share premium "100,000 1,100,000 Net income 568 Scanned with CamScannerSf - problem 37-3 (IAA) a company reported the following increases (decreases) in the Javunts for the current year: ace 1,500,000 Casts receivable (net) 3'500:000 javentory 3,900,000 javestments (1,000,000) Equipment 3,000,000 ‘accounts payable (800,000) gonds payable 2,000,000 During the year. the entity sold 100,000 shares with P20 par value for P30 per share and received cash in full. . Dividend of P1,500,000 was paid in cash during the year. Equipment with fair value of P2,000, y 000 was donated by a shareholder during the year, Heenan What amount was reported as net income a, 6,200,000 b. 9,700,000 c. 8,200,000 d. 7,700,000 for the current year? Solution 37-3 Answer a Effect on equity Increase in cash 1,300,000 Increase in accounts receivable 3,500,000 Increase in inventory 3,900,000 Decrease in investments (1,000,000) Increase in equipment 3,000,000 Decrease in accounts payable 800,000 Increase in bonds payable (2,000,000) Net increase in equity 9,700,000 Add: Dividend paid 1,500,000 Total 11,200,000 Less: Increase in contributed capital (100,000 x 30) 3,000,000 Increase in donated capital 2,000,000. 5,000,000 Net income 6,200,000 569 Scanned with CamScanner™~ ated problem 37-4 (IAA) 7 Atthe beginning of current year, Crispin Santos Pp merchandise business. During the year, the entity paid trade creditors p: suffered anet loss of P350,000. *etaiy 2,000,095 hig The ledger account preclosing balances at year-end inchy following: Accounts receivable Ideq the Accounts payable | 94003 Capital - total investment in cash 2 one Expenses paid in cash 00.0 Merchandise account with unadjusted debit balance oo 009 All sales and purchases were on credit. The merchandi 7 ise account: debited for purchases and credited for sales, ‘Ount is 1. What amount should be reported as purchases for the a. 2,000,000 b. 2,750,000 ec. 1,250,000 d. 2,050,000 year? 2. What amount should be reported as sales for the year? a. 2,750,000 b. 2,050,000 c. 2,650,000 d. 700,000 - Whatamount should be reported as cash balance on December 31? a. 1,350,000 2,000,000 ce. 1,450,000 d. 3,450,000 we 4. What amount should be reported as merchandise inventory on December 31? a. 700,000 b. 450,000 ec. 730,000 d, 0 Scanned with CamScannerf ation 37-4 ion | Answer b guest reston 2 Answer b ~ gunts payable - December 31 750,000 asetinis (0 trade creditors 2,000,000 pay ene sot 9URERASES 2,750,000 {eo Unadjusted debit balance of merchandise account _ 700,000 sales 2,050,000 guestion 3 Answer a cash - January 1 (Investment) 2,000,000 Ealections of AR (2,050,000 ~ 600,000) 1,450,000 rats 3,450,000 tess: Payment of account payable 2,000,000 Payment of expenses 100,000 2,100,000 cosh - December 31 1,350,000 Question 4 Answer b sales 2,050,000 Cost of goods sold Purchases 2,750,000 Merchandise inventory — 12/31 (squeeze)(_ 450,000) 2,300,000 Gross loss ( 250,000) Expenses (_ 100,000) Net loss (350,000) The ending merchandise inventory is “squeezed” by working back from the net loss of P350,000. 571 Scanned with CamScannerOG pany Starteg Problem 37-5(AICPA Adapted) ‘Atthe beginning of current year, Complex Com and issued share capital, 60,000 shares with PLO0 par. fay the Ta, considerations: Wing oat with useful life of 15 years aseottn a Sn 5.500.094 Ananalysis of the bank statements showed total deposits, inctaas original cash investment, of 3,500,000. Mchiding the The balance in the bank statement on December 31 Was P25 there were checks amounting to P50,000 dated in Decem ie 0 but paid by the bank until January of next year. Utnot Cash on hand on December 31 was P125,000 including cust . deposit of P75,000. ‘omerg During the year, the entity borrowed P500,000 from the b; repaid P125,000 and P25,000 interest. The proceeds ofthe Pak @ : loan were credited to the bank account of the entity, Were Disbursements paid in cash during the year were: Utilities 100,000 Salaries 100,000 Supplies 175,000 Taxes 25,000 Dividends 150,000 550,000 Aninventory of merchandise taken on December 31 showed P755,000 of merchandise, Tickets for accounts receivable totaled P900,000 but P50,000 of that amount may prove uncollectible. Unpaid suppliers invoices for merchandise amounted to P350,000. Equipment with a cash price of P400,000 was purchased in early January on one-year installment basis. Daring the year, checks for the downpayment and all maturing installments totaled P445,000. The ‘equipment hasa useful life of 5 years. 572 Scanned with CamScannerWhat amount should be reported as sales for the year? © 4, 4,000,000 p. 3,400,000 ¢, 3,100,000 d. 4,050,000 What amount should be reported as purchases for the year? 3,055,000 2,705,000 2,355,000 3,810,000 eegce . What amount should be reported as net income for the year? a. 800,000 b. 650,000 c, $70,000 d. 850,000 . What amount should be reported as total assets on December 31? a. 7,950,000 b. 7,800,000 c. 8,330,000 d. 8,380,000 . What amount should be reported as shareholders’ equity on December 31? a. 7,150,000 b. 7,300,000 c. d. - 6,500,000 |. 6,650,000 573 Scanned with CamScannerSolution 37-5 Question | Answer a Initial cash investment « ceeds of loan | a Cittections of accounts receivable (SQUEEZE) : so Total deposits 500 ww Customers’ deposit ; Collections of accounts receivable (SQUEEZE) 4 Total Disbursements in cash Cash on hand - December 31 Accounts receivable — December 31 Collections deposited Collections not deposited Total sales Question 2 Answer a Total deposits Total disbursements in check (SQUEEZE) Adjusted cash in bank — December 31 Cash in bank per book Outstanding checks Adjusted cash in bank Payment of loan Interest on loan Payment for equipment Interest on equipment Payment of accounts payable (SQUEEZE) Total disbursements in check Accounts payable — December 31 Payment of accounts payable Total purchases 574 Scanned with CamScannerL pestion 3 answer 4,000,000 gale . sof goods sold: i purchases + 3,055,000 inventory ~ December 31 (755,000) 2,300,000 gross income 1,700,000 expenses: . utilities 100,000 Salaries 100.900 Supplies 175,000 Taxes 25,000 Doubtful accounts 50,000 Depreciation— building (4,500,000/15) 300.000 Depreciation — equipment (400,000/5). 80,000 Interest expense (25,000+45,000) 70.000 900,000 Net income 300,000 Question 4 Answer a Cash 325,000 Accounts receivable Allowance for doubtful accounts Inventory Land Building Accumulated depreciation — building Equipment Accumulated depreciation — equipment Total assets Cash on hand Cash in bank Total cash 575 Scanned with CamScannerQuestion 5 Answer a Accounts payable Loan payable ~ bank (500,000 ~ 125,000) Cutomers’ deposit Total liabilities - December 31 Share capital (60,000 x P100) Share premium (6,500,000 — 6,000,000) Retained earnings Total shareholders’ equity - December 3] Net income Dividends paid Retained earnings Liabilities Shareholders’ equity Total liabilities and shareholders? equity Note that the total amount of assets is equal to the tot, liabilities and shareholders? equity, 576 ‘al amount of Scanned with CamScannerf- (HAPTER 38 cASH BASIS 38-1 (AICPA Adapted) proble Spee Company provided the following information for the current year: sales Goss 2,000,000 Returns and allowances 100,000 edit sales Gross 3,000,000 Discounts 150,000 Customers owed P1,000,000 on January 1 and P750,000 on December 31, The entity used direct writeoff method for bad debts. No bad debts were recorded in the current year. Under cash basis of accounting, what amount of sales revenue should be reported for the current year? a, 5,000,000 b. 4,730,000 c. 4,250,000 4. 1,900,000 Solution 38-1 Answer a Accounts receivable - January 1 1,000,000 ‘Add: Credit sales 3,000,000 Total 4,000,000 Less: Accounts receivable - December 31 750,000 Sales discounts 130,000 __ 900,000 Collections 3,100,000 Cash sales - net (2,000,000 ~ 100,000) 1.900.000 Total sales - cash basis 100 Under the cash basis, sales revenue includes cash sales and collections from customers. Scanned with CamScanner. ~ Problem 38-2 (AICPA Adapted) Zeta Company reported sales revenue of P4600 099 inthe; statement for the current year. MeO January 1 Decemy, ‘ 1,000,000 cry nts receivable ; | Allowance for uncollectible accounts 60,000 '300,oq5 ‘Advances from customers 200,00 in 009 The entity wrote offuncollectible accounts P50,000 during theg year... Under cash basis of accounting, what amount shoul, sales revenue for the current year? a. 4,400,000 b. 4,350,000 c. 4,300,000 d. 4,250,000 dbe Teporteg as Solution 38-2 Answer b Accounts receivable - January | eT oan Add: Sales for current year — accrual basis 4,600,000 Advances from customers - December 31 00 Total 5,900,000 Less: Accounts receivable - December 31 1,300,000 Writeof? 50,000 Advances from customers — January 1_ 200,000 1,550,000 Collections - cash basis sales revenue 4,350,000 ‘The advances from customers on December 31 are received in the current year and therefore included in cash basis sales revenue. However, the advances from customers on January 1 are received in prior year and properly included in accrual sales revenue but should be excluded from cash basis sales revenue for current year. 578 Scanned with CamScannerf problem 38-3 (IAA) queline Company began the current year with the following: Jac . accounts receivable 1,000,000 ‘allowance for doubtful accounts 50,000 poring the current year, the following events occurred: accounts written off 100,000 Cash sales 500,000 gales on account 3,000,000 gad debt expense recognized 200,000 atthe end of the current year, the entity showed a balance in accounts reccivable of P1,700,000 before the allowance for doubtful accounts. Under cash basis, what amount should-be reported as sales for the current year? a. 2,700,000 b. 2,200,000 c. 3,500,000 d. 2,900,000 Solution 38-3 Answer a Accounts receivable — January | 1,000,000 Sales on account 3,009,000 Total 4,000,000 Accounts receivable — December 31 (1,700,000) Accounts written off (_ 100,000) Collections of accounts receivable 2,200,000 Cash sales 500,090 Total sales — cash basis 2,700,000 The bad debt expense does not affect the collections of accounts receivable. Scanned with CamScanner4 (IAA) . problem 38 pri the following data forthe current yeay a y Royal Comp’ | les 300A eal of goods sold 300° ag expenses 7°00,009 Operating expen December 31 January 1 1,000,000 5 7 ing expenses Latah 700, Prepaid opera expe 350,000 Laon Accounts payal 250,000 2 ioony Inventory 1,400,000 1,375,999 Accounts receivable Under cash basis, the current year a. $,550,000 b. 5,700,000 c, 5,850,000 d. 5,159,000 Solution 38-4 Answer a Inventory — January } Purchases under accrual basis (SQUEEZE) Goods available for sale Inventory - December 31 Cost of goods sold Accounts payable ~ January | Purchases — accrual basis Total Accounts payable - December. 31 Cash paid for purchases — cash basis 580 what amount should be reported as purchases fo, 2,100,000 5,700,000 “7,800,000 (2,500,000) 3.300000 1,200,000 5,700,000 6,900,000 (1,350,000) Scanned with CamScanner/ problem 38-5 (AICPA Adapted) under Gerber Company's accounting system, all insurance premiums paid a debited to prepaid insurance. for interim financial statements, the entity made monthly estimated charges 10 insurance expense with an offset to prepaid insurance. prepaid insurance ~ January | 10,000 Charges to insurance expense during the current year including a year-end adjustment of P25,000 625,000 prepaid insurance ~ December 31 175,000 What was the amount of insurance premium paid during the current , 600,000 d. 650,000 Solution 38-5 Answer d Prepaid irjsurance — January | 150,000 Insurance paid (SQUEEZE) 650,000 Total ‘\ 800,000 Prepaid insurdce — December 31 (175,000) Insurance expense 625,000 ‘ 7 The insurance paid is simply squeezed by working back from the insurance expense during the current year. Journal entries during the year Prepaid insurance 650,000 Cash 650,000 Insurance expense 625,000 ; Prepaid insurance 625,000 581 Scanned with CamScannerP blem 38-6 (PHILCPA Adapted) ; . ar Company used the accrual basis of accounting firam , December 31 Jan a; 8,00 "YT ee 00.300 ¢, Prepaid expenses 7 500 10 Soion” ‘Accounts payable an ,000 2.000,099 Accrued expenses 0,000 300,090 Cost of goods sold 15,000,000 +009 Expenses 3,000,000 The expenses for the current year included depreciation of P299 09 and amortization of P100,000. 000 What total amount was paid for expenses during the Current year? a. 2,550,000 b. 2,850,000 c. 2,700,000 d. 3,150,000 Solution 38-6 Answer a Expenses 3,000,000 Depreciation ( 200,000) Amortization ( 100,000) Prepaid expenses - December 31 100,000 Prepaid expenses ~ January | (50,000) Accrued expenses — December 31 (500,000) Accrued expenses — January 1 300,000 Cash paid for expenses 2,550,000 The depreciation and amortization are noncash expense. wn eA Ss Scanned with CamScanner/ problem 38-7 (AICPA Adapted) inder accrual basis, Hamtikan Company reported rental income forthe current year at P600,000. e entity provided the following additional information regarding rental income: ijpearned rental income, January | 50,000 ijnearned rental income, December 31 : 75,000 Accrued rental income, January | 30,000 icerued rental income, December 31 40,000 ‘What total amount of cash was received from rental in the current year? 585,000 . 615,000 c. 625,000 d. 655,000 oe Solution 38-7 Answer b Rental income — accrual basis 600,000 Unearned rental income — January | ( 50,000) Unearned rental income ~ December 31 75,000 Accrued rental income — January | 30,000 Accrued rental income — December 31 (40,000) Rental received — cash basis 615,000 The unearned rental income January | was earned in the current year under accrual basis but it was received last year. The uneamed rental income December 31 was received in the current year and therefore included in cash basis income. The accrued rent income January | was earned last year under accrual basis but collected in the current year. The accrued rent income December 31 was earned in the current year under accrual basis but not collected until next year. 583 Scanned with CamScannerProblem 38-8 (AICPA Adapted) Ny February |, Tory began a service proprietorship wir. prt »00,000 P With an ing investment of P200, bog 4 ‘ i ided P500,000 of service ; The proprietorship provided ervice in p, soceved fll payment in March, brary ang The proprietorship incurred expenses of P300,000 in F W erepaid in April. Tory drew P100,000 during March, URLY hich For the two months ended March 31, prepared under basis, what amount should be reported as Capital? © cas, a. 100,000 b. 300,000 c. 600,000 d. 700,000 Solution 38-8 Answer c Capital - February 1 204 Cash basis income for February and March 009 — 500,00 700,000 £100,000) 600,000 = Total Withdrawals during March Capital - March 31 Under cash basis, no expenses were reported in February and March because the expenses were incurred in February and paid in April. 584 Scanned with CamScannerf- problem 38-9 (IAA) garcelynne Company provided the following data for the current yeat cash sales gales on account Cash purchases Credit purchases Expenses paid ‘Accounts receivable ~ January | ‘accounts receivable ~ December 31 ‘accounts payable ~ January | ‘Accounts payable — December 31 Inventory ~ January | Inventory - December 31 Accrued expenses ~ December 31 Prepaid expenses — December 31 Equipment — December 31 Interest received Interest receivable — January 1 Interest receivable — December 31 2,500,000 50,000 1,700,000 400,000 750,000 250,000 300,000 150,000 200,000 500,000 600,000 20,000 30,000 1,000,000 40,000 10,000 20,000 On July 1 of the current year, an equipment was acquired for 200,000. The terms are P50,000 down and the balance to be paid after one year. The useful life of equipment is 10 years with no residual value. Equipment - Jariuary | Acquired on July | Equipment ~ December 31 800,000 200,000 1,000,000 The balance of the equipment on January | is simply computed by working back from the balance cn December 31. 555 Scanned with CamScannerWhat amount of sales should be reported under cash a. 3,300,000 b. 2,500,000 c. 1,700,000 d. 2,750,000 |. What amount of purchases should be re basis? a. 1,700,000 b. 2,050,000 c. 1,450,000 4. 2,100,000 . Whatamount should be reported as cost o cash basis? a. 2,050,000 BL 2,550,000 c. 1,950,000 d. 1,450,000 What amount of depreciation should basis? 100,000 70,000 80,000 90,000 aosp . What amount should be reported basis? a. 550,000 b. 570,000 © 540,000 4. 640,000 basigy ‘Ported Under cash f' goods sold unde, be reported under cash as net income under eash Scanned with CamScannergain 38- “yes on account 850,000 sale ounts receivable — January | 250,000 Noun receivable ~ December 31 (300,000) olleetions from customers 800,000 Cash 3 2,500,000 otal sales ~ cash basis (Question | Answer a) 3,300,000 credit purchases 400,000 Accounts pay’ yable — January 1 150,000 ‘esounts payable ~ December 31 (200,000) payments of accounts payable 350,000 Cash purchases 1,700,000 otal purchases ~ eash basis(Question 2. Answer 4) 2,050,000 {nventory ~ January | 500,000 Purchases — cash basis 2,050,000 Goods available for sale 2,550,000 {nventory - December 31 (600,000) Cost of goods sold (Question 3 Answer c) 1,950,000 Depreciation should be recognized even under cash basis. Depreciation on equipment on January 1 (800,000/ 10) 80,000 Depreciation on equipment acquired on July 1 (200,000 / 10 x 6/12) 10,000 Total depreciation (Question 4 Answer d) Sales 3,300,000 Cost of goods sold (1,950,000) Gross income 1,350,000 Expenses paid (750,000) Depreciation ( 90,000) Interest received 40,000 Net income — cash basis (Question 5 Answer a) 550,000 587 Scanned with CamScanner™~ CHAPTER 39 ACCRUAL BASIS Basic problems Problem 39-1 (AICPA Adapted) Reid Company, which began operations on Janu 1,2 elected to use cash basis accounting for tax Purposes and 0, has basis accounting for the financial statements, Accrual The entity reported sales of P.1,750,000 and P800,000 i returns for the years ended December 31, 2021 an respectively. the tay 2029, ‘The entity reported accounts receivable of P300,000 and P500 og, on December 31, 2021 and 2020, respectively. +009 What amount should be reported as sales in the income statement for 2021 under accrual basis? 1,450,000 1,550,000 1,950,000 |. 2,050,000 a. b c, d, Solution 39-1 Answer b Accounts receivable - December 31, 2021 300,000 Sales in 2021 under cash basis — collections 1,750,000 Total 2,050,000 Accounts receivable - December 31, 2020 (500,000) Sales - accrual basis 1,350,000 588 Scanned with CamScannerple 39-2(AICPA Adapted) a Company provided the following information: 2021 2022 2023 cash receipts from customers: From year 2021 sales 950,000 1,200,000 From year 2022 sales 2,000,000 750,000 From year 2023 sales 500,000 2,250,000 |, What amount was reported as accrual basis income for 2021? 1,200,000 b. 2,150,000 950,000 & 900,000 9, What amount was reported as accrual basis income for 2022? 3,700,000 3,200,000 2,000,000 2,750,000 eee Solution 39-2 Question | Answer b Cash receipts — 2021 sales 950,000. Cash receipts in 2022 pertaining to 2021 sales 1,200,000 Total sales 2021 — accrual basis 2,150,000 Question 2. Answer d Cash receipts — 2022 sales Cash receipts in 2023 pertaining to 2022 sales Total sales 2022 — accrual basis Scanned with CamScanner39-3 (AICPA Adapted) Problem | lass Company maintained the accounting records onthe cag Clas: stated the financial statements to the aceryay meth but re: 7 i oi accounting. The entity had P6,000,000 in cash basis Pretax inet or for 2021. Ome The entity provided the following information at Year-eng. 2021 2 029 Accounts receivable 4,000,000 2000 ‘Accounts payable 1,500,000 3.000090 Under accrual basis, what amount of income before ‘ax shoulg reported in the income statement for 2021? be a. 2,500,000 b. 5,500,000 c. 6,500,000 d. 9,500,000 ~ Solution 39-3 Answer d Cash basis income 6,000,009 Add: Accounts receivable - 2021 4,000,000 Accounts payable - 2020 3,000,000 7,090,009 000.000 Total 13,000,000 Less: Accounts receivable - 2020 2,000,000 Accounts payable - 2021 1,500,000 _ 3,500,000 Acerual basis income : 9,500,000 Guideline - Cash basis income to accrual basis Ending asset balance is added to cash basis income Beginning asset balance is deducted from cash basis income Ending liability balance is deducted from cash basis income Beginning liability balance is added to cash basis income 590 Scanned with CamScannerf- pole 39-4 (AICPA Adapted) qqallcompany reported the following balances: December 31 January 1 joventoFY 2,600,000 2,900,000 accounts payable 750,000 500,000 he entity paid suppliers P4,900,000 during the current year. 1, Whatamount should be reported as purchases under accrual basis? a. 4,900,000 b. 5,150,000 ¢. 5,650,000 4. 4,650,000 . Under accrual basis, what amount should be reported for cost of goods sold in the current year? a. 5,450,000 b. 4,950,000 c. 4,850,000 d. 4,350,000 Solution 39-4 Question I Answer b Accounts payable - December 31 Payment to suppliers Total 5,650,000 Accounts payable - January | (500,000) Purchases ~ accrual basis 5 Question 2 Answer a Inventory = January | 2,900,000 Purchases 50,000 Goods avaitable for sale 8,050,000 Inventory - December 31 (2,600,000) Cost of gooas sold Scanned with CamScannerProblem 39-5 (AICPA Adapted) 21, Cooke Company acquired patent rj f P3,000,000. ported prepaid royalties of P550,009 a ble of P800,000 and P750,000, 450.9 and 2021. "eSpective yt During 20! royallie: The entity royalties payal December 31, 2020 ight ang rem; What amount should be reported as royalty expense for 200) ? a. 0,000 b. 3,050,000 100,000 3,300,000 c, d. Solution 39-5. Answer b Royalties paid Prepaid royalties - 2020 500009 Prepaid royalties - 2021 cag Royalties payable - 2021 5.0 Royalties payable - 2020 ( sone Royalty expense for 2021 Sosa ane “7 .050,000 0 Problem 39-6 (AICPA Adapted) Based on 2021 sales of compact discs recorded by an artist under acontract with Laser Company, the artist earned P] :000,000 after an adjustment of P80,000 for anticipated returns. ‘The entity paid the artist P750,000 in 2021 as a reasonable estimate of the amount recoverable from future royalties to be eamed by the artist. What amount should be reported as royalty expense for 2021? a. 1,000,000 b. 1,080,000 ¢. 1,750,000 d. 1,830,000 Soluion 39-6 Answer @ Royalty expense for 2021 (earned by artist in 2021) 1,000,000 $92 Scanned with CamScannerapie 39-7 (AICPA Adapted) re atis Company acquired rights to a patent undera licensing agreement ° tte ired an advance royalty payment when the agreement was mw . The entity remitted royalties eamed and due under the agreement 7 ‘October 31 each year. . ol additionally, the entity paid in advance estimated royalties for the next “car, The entity did not prepare reversing entry. Prepaid royalties ae adjusted at year end, The entity provided the following information for the year ended pecember 31: jan, 1 Prepaid royalties 650,000 ct. 31 Royalty payment charged to royalty expense — 1,100,000 Dec. 31 Year-end credit adjustment to expense 250,000 What amount should be reported as prepaid royalties on December 31? a. 250,000 | b. 400,000 c. 850,000 d. 900,000 Solution 39-7 Answer d Prepaid royalties - January 1 650,000 Add: Increase in prepaid royalties on December 31 250,000 Prepaid royalties - December 31 900,000 Journal entries during the year Jan. 1 No reversing entry Oct. 31 Royalty expense 1,100,000 Cash 1,100,000 Dec.31 Prepaid royalties 250,000 Royalty expense 250,000 593 Scanned with CamScanner“\ Adapted) xy Company obtained fire insurance rm On July 1207 O00 payable on July | of each year Remy premium sayment ‘was made July 1, 2021. Firs 7021, the entity paid Pies re ‘al e On Oct riod ending September 30, 2022, State {axes over the apecerber 31,2021 what amount should be reported rn , expenses? a. 60,000 b. 54,000 c. 48,000 d. 36,000 Solution 39-8 Answer b wn id i 000 x 6/12 - Prepaid insurance (72, stim Prepaid taxes (24,000 x 9/12) ite Total prepaid expenses - December 31, 2021 sig Problem 39-9 (AICPAAdapted) i ny reported that the unadjusted prepaid ex; Peers is 3051 compe sed the following: ense on + Anopening balance of P150,000 for an insurance policy, Ty ate had paid an annual premium of P300,000 on fuly 1-ageke + AP320,000 annual insurance premium payment July 1, 2021, + AP200,000 advance rental payment for a warehouse leased for one year beginning January 1, 2022. On December 31, 2021, what amount should be reported as prepaid expenses? a. 520,000 b. 360,000 c. 200,000 d. 160,000 Solution 39-9 Answer b Prepaid insurance (320,000 x 6/12) 160,000 Prepaid rent 200,000 Total prepaid expenses - December 31, 2021 The prepaid insurance of P150,000 on January 1, 2021 is already ‘expensed in 2021. 594 Scanned with CamScannerLf prabtem 39-10 (ATCEA Adapted) Rat Company paid P72,000 to renew the only insurance policy sae Years OF March 1, 2021, the effective date of the policy. on March 31, 2021, the unadjusted trial balance showed a balance oP} 000 for prepaid insurance and P72,000 for insurance expense. 1, What ba should be reported for prepaid insurance on March ay, 2021? 67.000 70,000 c. 72,000 d. 73,000 = >, Whatamunt should be reported for insurance expense for the three months ended March 31, 2021? 4,000 3,000 5,000 2,000 ao oP Solution 39-10 Question 1 Answer b Prepaid insurance - March 31, 2021 (72,000 x 35/36) Question 2 Answer e Insurance expense per book 72,000 Prepaid insurance before adjustment 3,000 Total 75,000 Prepaid insurance - March 31, 2021 (70,000) Insurance expense 00 Adjusting entry Prepaid insurance (70,000 ~ 3,000) 67,000 Insurance expense 67,000 595 Scanned with CamScannerProblem 39-11 (IAA) NS Airene Company paid P1,000,000 for Supplies q ‘ uri The full amount of P1,000,000 was debited to suppl ing 2 ae ies inven! The January 1, 2021 balance of supplies inventory wag 36g e January I, A physical count of the supplies on hand on December 7 revealed an amount of P600,000. 009, 209) What is the adjusting entry for supplies expense on December 1 2021? a. Debit supplies expense and credit supplies inventory P760 b. Debit supplies expense and credit supplies inventory P60 c. Debit supplies inventory and credit supplies expense Pon d. Debit supplies inventory and credit supplies expense P2409 ‘on Solution 39-11 Answer a Supplies inventory —January 1 * 36,009 Payment for supplies debited to supplies inventory 1.000000 —S Total: 1,360,000 inventory - December 31 Supplies inventory - Dec: 3 (vat Supplies expense sts The asset method was used in recording purchase of supplies, Supplies inventory ‘ 1,000,000 Cash 1,000,000 Adjusting entry Supplies expense 760,000 Supplies inventory 760,000 596 Scanned with CamScannerf , qptem 39-12 (IAA) rt Company reported supplies inventory at the beginning of the pet abalance of P40,000 before the reversing cat Payments Ye supplies during the year amounted to P250,000 and were recorded forspense. A physical count at the end of year revealed supplies 4 sed costing P50,000. Reversing entries are made by the entity. What wibited in the adjusting entry at year-end? supplies expense P 10,000 Supplies P 10,000 "Supplies expense P240,000 i Suppliesinventory — P_- 50,000 solution 39-12 Answer d The expense method is used recording supplies. supplies expense 250,000 Cash 250,000 Adjusting entry supplies inventory 50,000 Supplies expense 50,000 Problem 39-13 (IAA) Lake Company is resort located in Palawan. The entity collects cash when guests make a reservation. During December, the. entity collected ?600,000 of cash and recorded the receipt by recognizing unearned revenue. The entity had eamed one-third of this amount and the other two-thirds will be eamed next year, What is the impact of the adjusting entry at year-end? 400,000 increase in equity 200,000 decrease in liability 600,000 increase in asset . 200,000 decrease in equity Solution 39-13 Answer b The liability method is used in recording income. Cash 600,000 Unearned revenue 600,000 Adjusting entry Unearned revenue 200,000 Revenue (600,000 x 1/3) 200,000 597 Scanned with CamScannerProblem 39-14 (IAA) Karen Company reported in the income Statement for year P1,100,000 of wages expense, An analysis oe * i records showed wage payments during the year of P90 op? The previous year’s statement of financial Position P100,000 of wages payable. The previous year’s adjun Pay for unpaid wages was reversed at the beginning Of current: cr Yea,“ What amount should be recognized as adjusting entry for wages payable at year-end? Aone a, 250,000 b. 400,000 ce. 150,000 d. 850,000 Solution 39-14 Answer a Wages payable ~ January | 100,000 Wages expense for current year 1,100.09 1,100,000 Total 1,200,009 Wage payments during the year (950,009 2,000) Wages payable — December 31 250,000 Adjusting entry on December 31 Wages expense 250,000 Accrued wages payable 250,000 Assuming no reversing entry was made Wages expense 150,000 Wages payable 150,000 Wages payable ~ December 31 250,000 Wages payable — January 1 100,000 Increase in wages payable 150,000 598 Scanned with CamScanner/ pote 39-18 (AICPA Adapted) pice Company's salaried employees are paid biweekly. Advances nadet© employees are paid back by payroll deductions. January1 December 31 joyee advances 240,000 60,000 ferued salaries payable 400,000 2 salaries expense during the year 4,200,000 salaries paid during the year at gross 3,900,000 What amount should be reported as accrued salaries payable on December 31? a. 940,000 , 820,000 ¢, 700,000 a. 300,000 Solution 39-15 Answer c ‘Accrued salaries payable - January | 400,000 Salaries expense 4,200,000 Total 4,600,000 Salaries paid during the year (3,900,000) Accrued salaries payable - December 31 700,000 599 Scanned with CamScannerProblem 39-16 (AICPA Adapted) Doren Company had a balance of P490,009 int the expense account on December 31, 2021 before ve coy for the following: Pen, are) Say end Adu iT + No salary accrual was made for the week De 2021. Salaries for this period totaled P20,000 on January 5, 2022. Comber 5, “Sy and Were ma + Bonus for 2021 was paid on January 31,2022 of P175,000. ‘the total amy ‘tn What amount should be reported as compensation, expense f Or: 685,000 . 665,000 510,000 490,000 20219 BesPp Solution 39-16 Answer a Compensation expense per book Accrued salaries ~ December 31, 2021 one Accrued bonus December 31, 2021 17509 Total compensation expense 685.009 600 Scanned with CamScannerproblem 39-17 (AICPA Adapted) December 31 +2021, Ashe Company had a P1.500,000 balance in the adv ertising expense account before any year-end adjustments. . Radioand television advertising spots broadcast during December 2021 were billed to Ashe on January 4, 2022. The invoice cost of 200,000 was paid on January 15, 2022. «Included in the P1.500,000 is P300,000 for newspaper advertising fora January 2022 sales promotional campaign. Whatamount should be reported as advertising expense for 2021? a. 1,500,000 b. 1,400,000 c. 1,700,000 4. 2,000,000 Solution 39-17 Answer b Balance per book 1,500,000 Radio advertising accrued on December 31, 2021 200,000 Total 1,700,000 Prepaid newspaper advertising ~ December 31, 2021 (300,000) Advertising expense for 2021 100,000 The newspaper advertising of P300,000 is not yet incurred because it pertains to a January 2022 sales promotional campaign. 601 Scanned with CamScanner™\ Pak Company had a balance of P820,000 in the Professiona| fees expense account on December 31, 2021 before considering adjustments relating to the following Problem 39-18 (AICPA Adapted) Yearseng + Consultants were hired for a special project at a total fog exceed P650,000. The entity had recorded P550,000 of this fee based on billi work performed in 2021. NOL to Ns for * The attomey’s letter requested by the auditors dated January 3), 2022, indicated that legal fees of P60.000 were billed on January 15, 2022 for work performed in November 2021, and unbilled fees for December 2021 were P70,000. What amount should be reported for professional fees expense for the year ended December 31, 2021? a. 1,050,000 b. 950,000 c, 880,000 d. 820,000 Solution 39-18 Answer b Balance per book 820,000 Accrued legal fees: November 60,000 December 70,000 130,000 Total professional fees expense 950,000 The consultants’ fee of P550,000 had already been recorded and included in the professional fees expense, The balance of P100,000 is ignored because the work is not yet performed. 602 Scanned with CamScannerf aplem 39-19 (AICPA Adapted) pr ‘ompany pays the outside salespersons fixed monthly salaries ray C 7 Fay missions on net sales. gnd co! les commissions are computed and paid on a monthly basis (in we month following the month of sale), and the fixed salaries are treated aS advances against commissions. However, ifthe fixed salaries for salespersons exceed their sales commissions earned for a month, such excess is not charged back tothem. pertinent data for the month of March for the three salespersons areas follows: Fixed Salesperson salary Net sales Commission A 10,000 200,000 ah B 14,000 400,000 . 6% c 18,000 600,000 6% 00 1,200,000 What amount should be accrued for sales commissions on March 31? a. 70,000 b. 68,000 c, 28,000 d. 26,000 Solution 39-19 Answer ¢ Salary Commission Accrued commission A 10,000 8,000 B 14,000 24,000 10,000 C 18,000 36,000 18,000 000 603 Scanned with CamScannerProblem 39-20 (IAA) . Bianca Company maintained the accounting records using the cash basis of accounting, During the current year, the entity collected P5,000,000 in fees from clie1ts. On January 1, accounts receivable of P800,000 and unearned fees of P500,000 had been re~orded. On December 31, accounts receivable increased to P1,500,000 while unearned fees increased to P900,000. . Under accrual basis, what is the service revenue for the current year? a. 5,000,000 b. 4,700,000 c. 6,100,000 d. 5,300,000 Solution 39-20 Answer d Collections from clients 5,000,000 Accounts receivable ~ December 31 1,300,000 Unearned fees — January | 500,000 Total 7,000,000 Accounts receivable - January | ( 800,000) Unearned fees - December 31 Service revenue — accrual basis 604 Scanned with CamScannerjn 2! (AICPA Adapted) Tara Company received P8,000,000 from . ¢ current year, ! pute The entity provided the following data for the current nants: yee “ receivable — January | 960,000 peat Oe vable — December 31 1,240,000 pet Fy ent revenue ~ January | 3,200,000 scot Tent revenue ~ December 31 2,400,000 veretble rent written off during the year 500,000 what amount of rent revenue should be reported for the current year? 4, 9,080,000 5, 9,980,000 ¢, §,580,000 7,980,000 Solution 39-21 Answer b cash received from tenants 8,000,000 Rent receivable - December 31 1.240,000 Unearned rent revenue ~ January | 3,200,000 Rent written off during the year 500,000 Total 12,940,000 Less: Rent receivable - January 1 960,000 Unearned rent revenue - December 31 2,400,000 3,360,000 ° Rent revenue for current year 9,580,000 Scanned with CamScannerProblem 39-22 (AICPA Adapted) 4 royalty interest in an oil well. The Ril 2d 220° ompany owned a 20 ry 31 forthe oil solg entity received royalty payments on Janua : between the previous June | and November 30. and on July 3] for oil between December | and May 3!- Production reports revealed the following sales: June 1, 2020 - November 30, 2020 3,000,000 December I, 2020 - December 31, 2020 ~300,000 December 1, 2020 - May 31, 2021 4,000,000 June 1, 2021 - November 30, 2021 3,250,000 December 1, 2021 - December 31, 2021 700,000 What amount should be reported as royalty revenue for 2021? a. 1,400,000 b. 1,440,000 c. 1,490,000 d. 1,590,000 Solution 39-22 Answer c December 1, 2020 - May31, 2021 4,000,000 December 1, 2020 - December 31, 2020 (500,000) Sales - January | to May 31, 2021 June 1, 2021 - November 30, 2021 December 1, 2021 - December 31, 2021 Total sales in 2021 Royalty revenue for 2021 (20% x 7.450,000) 1,490,000 Scanned with CamScanner0 39-23 nob inning of current year, Denver Company entered into a At a ficensing agreement with Akins Company allowing Akins to use ay" os cartoon characters on all the lunchboxes that Akins avel pe factures: par wyinsis required to pay Denver royalties equal to 10% of annual sales. kins guaranteed Denvera P1.,200,000 minimum royalty over the ite of the agreement and paid Denver the minimum amountat the seaimning ‘current year. ns’ sales totaled P5,000,000 for the current year. (AICPA Adapted) Aki What amount of royalty income should Denver report for the current yea? 3, 300,000 5, 500,000: <, 800,000 4. 1,200,000 Solution 39-23 Answer b Royalty revenue for current year (10% x 5,000,000) 500,000 Since the guaranteed minimum annual royalty is P300,000 (1,200,000 / 4 years). the royalty revenue for current year is P500,000. Scanned with CamScannerProblem 39-24 (IAA) . : Reina Company maintains its books on 3 cash basis. rome current year, the entity collected P50,000, paid P42,000,000 in expenses. Increase January December 31 (Decrease) Accounts receivable 2,000,000 e000 ‘ 10 Prepaid expenses 200,000 900000 400,009 Advances from customers 500,000 $00:000 (200,009 Accrued expenses 1,000,000 2,500,000 1.100.009) Accounts payable 1,400,000 2,500, oe y '500,000 Depreciation for current year What amount should be reported as accrual basis net income? a. 6,500,000 b. 6,000,000 c. 8,000,000 d. 7,500,000 Solution 39-24 Answer b Cash collected from customers 50,000,000 Expenses paid - (42,000,000) Depreciation (500,000) Net income ~ cash basis 7,500,000 Decrease in accounts receivable (300,000) Increase in prepaid expenses 190,000 Increase in advances from customers ( 400,000) Decrease in accrued expenses 200,000 Increase in accounts payable (1,100.00) Net income ~ acerual basis 6,000,000 Depreciation should be recognized even under cash ba: Guideline — cash basis income to accrual basis Increase in asset — increase in net income Decrease in asset — decrease Mm net income Increase in liability — decrease in net income Decrease in liability ~ increase in net income 608 Scanned with CamScanneren 3925 A) ye - company decided to convert the cash basis financial ganda sto accrual basis financial statements: “em ° omprehensive insurance policy requires a payment every year ‘ oe e upcoming year. The last payment of P1,200,000 was for je on September 1, 2021. im atthe end of the current year, various credit card entities owed + Mijgard Company P650,000. Atthe end of last year, customer credit card charges outstanding were P500,000. Employees are paid once a month, on the 10th of the month following the work period. Cash disbursements to employees were P800,000 and P700,000 for January 10, 2022 and January 10, 2021, respectively. Utility bills outstanding totaled P100,000 at the end of 2021 and P250,000 at the end of 2020. . The merchandise on hand at the end of 2021 was P3,500,000 and at the end of 2020, inventory on hand was P3,200,000. Atthe end of 2020, the entity did not have any bills outstanding to suppliers of merchandise. However, at the end 2021, the entity owed suppliers P400,000. + Cash basis net income before deprecicition of P100,000 amounted to P2,600,000. What amount should be reported as net income under cash basis? . What amount should be reported as net income under acerual basis? 3,400,000 3,500,000 3,200,000 . 2,500,000 ae oP 609 Scanned with CamScannerSolution 39-25 Question 1 Answer c jatic 2,600,009 i tion ,( Cash basis net income before deprecial a0 Depreciation _ ra 2.500,0 Cash basis net income 2:500,000 Depreciation should be recognized even under cash basis, Question 2 Answer a Cash basis net income before depreciation 2,600,000 Depreciation ( 100,000) Prepaid insurance — December 3 1, 2021 (1;200,000 x 8/12) 800,000 Accounts receivable ~ December 31 , 2021 650,000 Accounts receivable — December 31 , 2020 ( 500,000) Accrued salaries — December 31, 2021 ( 800,000) Accrued salaries — December 31, 2020 700,000 Accrued utility bills - December 3 1, 2021 ( 100,000) Accrued utility bills December 3 1, 2020 250,000 Inventory — December 31, 2021 3,500,000 Inventory — December 31, 2020 (3,200,000) Accounts payable — December 31 » 2021 400,000) Accrual basis net income 3,400,000 Guideline - cash to accrual Ending asset balance is added to cash basis income. Beginning asset balance is deducted from cash Ending liability balance is deducted from cash basis income. Beginning liability balance is added to cash basis income. OR Increase in asset is added to cash basis income. Decrease in asset is deducted from cash basis income. Increase in liability is deducted ‘from cash basis income. Decrease in liability is added 10 cash basis income. basis income. 610 Scanned with CamScannerf APTER 40 RUAL BASIS Av” chensive problems 40-1 (PHILCPA Adapted) poole " / capt Company provided the following data: January! December 31 1,200,000 1,600,000 yen FY 600. Intot goods sold 5,500,000 accounts receivable 1,200,000 ‘eeounts payable 1,500,000 uring the,current year, accounts written offamounted to P100,000. Soles returns with credit memo totaled P250,000. refund to customers for retumed goods of P50,000 was debited Cash. I joaccounts receivable. Cashreceipts from customers after P500,000 sales discounts amounted 9 P8,000,000. Cash payments to trade creditors totaled P5,000,000 after purchase discounts of P200,000. Purchase returns with debit memo amounted to P400,000. 1, Under accrual, what amount should be reported as gross sales? a. 8,900,000 b, 8,950,000" c, 8,250,000 d. 8.850.000 2. Underacerual, what amount should be reported as gross: purchases? a. 5,250,000 b. 5,950,000 c. 3,750,000 a. 5,650,000 3 What amount should be reported as cost of goodssold under acerual is? 611 Scanned with CamScannerSolution 40-1 Ouestion I — Answer b Accounts receivable - December 31 Accounts written off Sales returns with credit memo Cash receipts from customers Sales discounts Total Cash refund to customers erronously del accounts receivable Accounts receivable — January | hited to Gross sales Question 2 Answer b Accounts payable ~ December 31 Purchase returns with debit memo Payments to trade creditors Purchase discounts Total Accounts payable — January | Gross purchases Gross purchases Purchases returns Purchase discounts Net purchases Question 3 Answer c Inventory — January 1 Net purchases Goods available for sale Inventory ~ December 31 Cost of goods sold Scanned with CamScanner 1,350,000 100,009, 250,000 8,000,000 500,000 10,200,000 (50,000) ( 1,200,000) 8,950,000 1,850,000 400,000 5,000,000 200,000 7,450,000 (1,500,000) 5,950,000 5,950,000 ( 400,000) 200,000) 5,350,000 1,200,000 5,350,000 6,550,000 (1,600,000) 4,950,000.jom 40-2 (IAA) 0b : elle Company provided the following selected accounts, cash oS and disbursements for the current year: we . December 31 January 1 accounts receivable 250,000 300,000 notes receivable 150,000 100,000 accounts payable 120,000 160,000 Notes payable — trade and nontrade 200,000 150,000 prepaid insurance 30,000 10,000 Cash receipts for current year Cash sales 500,000 Collections of accounts, net of discounts of P40,000 1,800,000 Collections of notes receivable 80,000 Bank loan — one-year note, unpaid December 31 1¢0,000 Purchase returns and allowances 60,000 Cash disbursements for current year Cash purchases 130,000 Payments of accounts payable, net of discounts of P20,000 1,500,000 Payments of notes payable 400,000 Insurance 220,000 Other expenses 650,000 Sales returns and allowances 50,000 1. Under acerual basis, what amount should be reported as gross sales? a. 2,420,000 b. 2,470,000 c. 2,370,000 d. 2,380,000 | Under acerual basis, what amount should be reported as gross purchases? a. 1,960,000 b. 2,060,000 ce. 2,140,000 d. 1,830,000 613 Scanned with CamScannerSolution 40-2 Question 1 Answer a Accounts receivable - December 31 Senate Notes receivable — December 31 1,800°9 0 Collections of accounts receivable aa) 00 Sales discounts pt Collections of notes receivable —80,000 Total Camano Accounts receivable — January | 300,000) Notes receivable - January 1 100,000) Sales on account 1,920,000 Cash sales 500,000 * Gross sales 2,420,000 Question 2 Answer a Accounts payable — December 31 120,000 Notes payable — trade: Notes payable. December 31 200,000 Bank loan on December 31 (100,000) 100,000 Payments of accounts payable 1,500,000 Purchase discounts 20,000 Payments of notes payable 400,000 Total 2,140,000 Accounts payable - January | (160,000) Note payable — January | (150,000) Purchases on account 1,830,000 Cash purchases 130,000 Gross purchases 1,960,000 The bank note payable is nontrade and therefore should be excluded in computing purchases. Inthe absence of any statement to the contrary, notes payable should be considered as trade. Scanned with CamScannerfo problem 40-3 (AICPA Adapted) yerill Company has not prepared financial statements for three years since December 31, 2018. puring the three-year period, the cash receipts and cash” disbursements were maintained and sales on account were entered directly into an accounts receivable ledger. However, no general ledger postings have been made since the December 31,2018 closing. ‘The examination of the records disclosed balances at the beginning and end of the three-year period as follows: December 31, 2018 Less than | year, old 77,000 j to 2 years old 6,000 2to 3 years old Over 3 years old Total accounts receivable 83.000 Inventory 58,000 Accounts payable 25,000 December 31, 2021 141,000 9,000 4,000 11,000 165,000 94,000 55,000 No account balances have been written off during the three-year period. The ratio of gross profit to sales remains constant from year to year. Other data available are as follows: 2019 Cash received applied to Current year 744,000 Accounts of prior year 67,000 Accounts of two years prior __ 3,000 Total collections 814,000 Cash sales 85,000 Payment of accounts payable 625,000 615 2020 2021 809,000 1,044,000 75,000 84,000 2,000 10,000 $86,000 1,138,000 130,000, 156,000 706,000 869,000 Scanned with CamScanneres for 2019, 299, 1. What amount should be reported as total sales for 2029 and 2021? a. 1,341,000 b. 3,291,000 ¢. 2,920,000 d. 1,032,000 2. What amount should be reported as total purchases for 2019, 2029 and 2021? 2,170,000 2,200,000 2,230,000 2,255,000 ao se 3. What amount should be reported as cost of goods sold for 201 9, 2020 and 2021? c. 2,288,000 d. 2,194,000 616 Scanned with CamScannerv splot 10-3 3 estion | Answer b gue 7 2019 2020 2021 _ pecember 31, 2021 4,000 9,00 41,000 a ecived applied to: 0 141,00 catefrent year 744,000 809,000 1,044,000 Accounts of prior year 75,000 84,000 - ‘Accounts of two years prior _10,000 - - gales On account 833,000 902,000 1,185,000 Cash sales 85,000 _ 130,000 _ 156,000 otal sales 918,000 1,032,000 1,341,000 otal amount (918,000 + 1,032,000 + 1,341,000) 3,291,000 Question 2 Answer c Accounts payable ~ December 31, 2021 55,000 Payment of accounts payable: 2019 625,000 2020 706,000 2021 869,000 Total Accounts payable — December 31, 2018 Purchases — 2019, 2020 and 2021 Question 3. Answer d Inventory — December 31, 2018 58,000 Purchases — 2019, 2020 and 2021 2,230,000 Goods available for sale 8,000 Inventory - December 31, 2021 (__ 94,000) Cost of goods sold — 2019, 2020 and 2021 Sales ~ 2019, 2020 and 2021 Cost of goods sold — 2019, 2020 and 2021 Gross profit Average gross profit rate (1,097,000 / 3,291,000) 617 Scanned with CamScannerProblem 40-4 (AICPA Adapted) + Janu: ying information on ary | following " : reported the Lake Company 2021: iments in shares . 100,09 teva Compeny, 1,000 shares soon? Aub Company, 5,000-shares Real estate: 3.000, _— Parking lot leased to Day Company ,009 Other: 2509 Trademark rea 350, 0 Total investments 2350.009 Yo . During the year ended Lake owned 1% of Kar and 30% of Aub. D ig December 31,2021, Lake received cash dividend of P10,000 from Kar, and P150,000 from Aub, whose 2021 net income figures were P750,000 and P1,500,000 respectively. The Day lease, which commenced on January 1, 202 lis for 10 years at an annual rental of P480,000, Lake received P480,000 rent from Day in 2021. ; In addition, on January 1, 2021 Day paid a nonrefundable deposit of 500,000, as well asa security deposit of P80,000 to be refunded upon expiration of lease. ‘The trademark was licensed to Barr Company for royalties of 10% of sales of the trademarked items, Royalties are payable semiannually on March 1 for sales in July through December of prior year, and on September I for sales in January through June of the same year. Lake received the following royalties from Barr: March 1 September ! 300,000 500,000 400,000 700,000 the trademarked items totaled 2020 2021 Barr Cothpany Teported that sales of P2,000,000 for the last halfof 2021, 618 Scanned with CamScannerWhat amount should be reported for dividend revenue? 160.000 24,000 10,000 1,500 What amount should be reported for rental revenue? a. 430,000 b, 480,000 c, 530,000 4, 538,000 3, What amount should be reported for royalty revenue? a. 1,400,000 b. 1,300,000 ©. d eese 1,100,000 900,000 Solution 40-4 Question 1 Answer c Cash dividend from Kar 10,000 The cash dividend of P150,000 received from Aub is nor recognized as dividend revenue because the interest in Aub is 30% and therefore the equity method is used. Cash dividend isareduction of investment under equity method. Question 2 Answer c Rental for 2021 480,000 Amortization of nonrefundable deposit (500,000 / 10) 50,000 Total rental revenue 530,000 Question 3 Answer d Royalty revenue from January to June 2021 paid on September |, 2021 700,000 Royalty from July to December 2021 (10% x 2,000,000) 200,000 900,000 Total royalty revenue Scanned with CamScannerProblem 40-5 (AICPA Adapted) « torship. which maintained the account, Veronica Company, @ proprietorship. v main n Nn recordson the: eh basis provided the following information during the current year: 320,000 Cash Accounts receivable ~ January | 1,600,000 Inventory — January | 600,000 Furniture and fixtures 1,200,000 Accumulated depreciation ~ January 1 300,000 Accounts payable — January | 200,000 Veronica, Capital — January | 2,000,000 Sales 6,500,000 Purchases 3,050,000 Salaries : 1,750,000 Payroll taxes 110,000 Insurance expense 90,000 Utilities 150,000 Living expenses 130,000 9,000,000 9,000,000 Scanned with CamScanneradditional information Accounts receivable totaled P3,600,000 on December 31 Ananalysis of the accounts receivable revealed that an allowance * for doubtful accounts of P400,000 should be provided. Accounts payable totaled P300,000 on December 31. i The inventory totaled P750,000 at cost based ona physical count of the goods on December 31. . On May 1, the entity paid P90,000 to renew the insurance policy for one year. The premium on the previous policy which expired on April 30 was P75,000. Depreciation on furniture and fixtures was P120,000. . Accrued expenses on January | and December 31 were: January 1 December 31 Utilities 10,000 15,000 Payroll taxes 20,000 30,000 . The entity is being sued for P4,000,000. The coverage under the comprehensive insurance policy is limited to P2,500,000. The attomey believed that an unfavorable outcome is probable and that a reasonable estimate of the settlement is P3,000,000. The liability is expected to be settled in the following year. |. The salaries included P40,000 per month paid to the owner. The owner also received P2,500 per week for living expenses. 621 Scanned with CamScannerWhat amount of sales should be reported under accrual basi) a. 6,500,000 b. 4,500,000 c, 8,500,000 d. 9,100,000 What amount of cost of goods sold should be reported Unde, accrual basis? a. 3,000,000 b. 3,150,000 ce. 3,200,000 d. 2,900,000 - What total amount of expenses should be reported under accrual basis? a. 5,150,000 b. 4,650,000 c. 2,150,000 d. 2,650,000 ~ What amount should be reported as net income for the year under accrual basis? 2,720,000 2,850,000 2,370,000 2,240,000 aeop - What amount should be reported as capital on December 31? a. 4,235,000 b. 1,995,000 ©. 4,845,000 d. 4,365,000 622 Scanned with CamScannerfr aietion 4° yestion ] Answer c Jes - cash basis: 6,500,000 sas jg eceivable — December 3,600,000 pet receivable— Ja (1,600,000) gqles~ aeerual basis 8,500,000 Question 2 Answer a purchases ~ cash basis 3,050,000 ‘Accounts payable — December 31 300,000 ‘Accounts payable — January 1 ~ (200,000) Purchases — accrual basis 3,150,000 Inventory — January | i 600,000 Inventory — December 31 (750,000) Cost of goods sold — accrual basis 3,000,000 Question 3 Answer d Salaries 1,270,000 Payroll taxes 120,000 Insurance expense 85,000 Utilities. 155,001 Doubtful accounts 400,000 Depreciation 120,000 Loss from lawsuit (3,000,000 —2,500,000) 500,000 50,000 Total expenses Salaries per book 1,750,000 Less: Drawings (40,000 x 12) (_ 480,000) Adjusted salaries 0 Payroll taxes per book 110,000 Accrued taxes - December 31 30,000 Accrued taxes — January | (20,000) Adjusted payroll taxes 7 120,000 623 Scanned with CamScanner7 75,000 x 4/12) 25,04 m previous policy {59/990 x 8/12) sn 009 Expired amount on previo F) Expired amount o Se Insurance expense 00 Iso, Utilities per book 31 8 7 Accrued utilities ~ December 3 a ‘Accrued utilities - January | 2000) . 155. Adjusted utilities S300 Question 4 Answer b Sales 8,500,009 6,000,009) Cost of goods sold 3.000.000) Gross income 5.500009 Expenses 2.650.000) Net income for the year - accrual basis 2.850.009 ———— Question 5 Answer a Capital - January 1 2,000,000 Unrecorded prepaid insurance — January | 25,000 Unrecorded accrued expenses — January 1 (30,000) Adjusted capital — January | 1,995,000 Net income for the year 2,850,000 Drawings (610,000) Capital - December 31 4.235,000 Salary of owner (40,000 x 12) 480,000 Living expenses (2,500 x $2 weeks) 130,000 Drawings 610,000 There are 52 weeks in a year. 624 Scanned with CamScanner