BACHELOR OF SCIENCE IN MASS COMMUNICATION MINOR IN ACCOUNTANCY AND CULINARY ARTS

LUZON VISAYAS MINDANAO UNIVERSITY OF THE PHILIPPINES

4TH TERM, A.Y. 2088-2100
LIST OF ACTIVITIES

CHAPTER 11: Completing the Accounting Cycle for a Merchandiser

Exercises (pages 317-322)

1. The following are the selected account balances of El Mar Company taken from its trial balance as of December 31, 2017:

Accounts Receivable: ₱125,000

Allowance for Doubtful Accounts: ₱2,000
Sales: ₱1,200,000
Sales Returns & Allowances: ₱10,000
Sales Discount: ₱20,000

Required:

a. Give the adjusting entry using the following methods of providing for bad debts:

1. Bad Debts accounts is estimated to be 1% of gross sales.

2. Bad Debts is estimated to be 1% of net sales.
3. Increase the allowance by 1% of the accounts receivable.
4. The allowance for doubtful accounts should be increased to 2% of accounts receivable.
5. The aging schedule shows that uncollectible accounts will amount to ₱2,250.

b. Give the realizable value that should be presented in the statement of financial position based on each of the aforementioned
methods given. Use the following format:

Accounts Receivable
1: ₱125,000
2: ₱125,000
3: ₱125,000
4: ₱125,000
5: ₱125,000

Less Allowance for Doubtful Accounts

1: ₱?
2: ₱?
3: ₱?
4: ₱?
5: ₱?

Realizable Value
1: ₱?
2: ₱?
3: ₱?
4: ₱?
5: ₱?

2. Juggle Company has accounts receivable of ₱360,000 as at December 3, 2017. Credit Terms are 2/10, n/20. An analysis of the customers’
account revealed the following:

Amount: ₱60,000
Age of Accounts: Within the discount period
Estimated Percentage Uncollectible: 0

Amount: ₱150,000
Age of Accounts: 1-30 days past due
Estimated Percentage Uncollectible: 2

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 BACHELOR OF SCIENCE IN MASS COMMUNICATION MINOR IN ACCOUNTANCY AND CULINARY ARTS
LUZON VISAYAS MINDANAO UNIVERSITY OF THE PHILIPPINES
4TH TERM, A.Y. 2088-2100
LIST OF ACTIVITIES
Amount: ₱70,000
Age of Accounts: 31-60 days past due
Estimated Percentage Uncollectible: 5

Amount: ₱50,000
Age of Accounts: 61-90 days past due
Estimated Percentage Uncollectible: 25

Amount: ₱30,000
Age of Accounts: Over 90 days
Estimated Percentage Uncollectible: 50

The allowance for bad debts has a credit balance of ₱20,000. Accountant estimates provision for bad debts at the end of the year using the
aging schedule.

Required: Give the adjusting entry and the net realizable value of the accounts receivable.

3. Popular Grocery had the following assets as of December 31, 2017:

Building
Date Acquired: January 1, 2016
Useful Life: 20
Cost: ₱8,800,000
Salvage Value: ₱800,000

Furniture & Fixtures

Date Acquired: July 1, 2016
Useful Life: 10
Cost: ₱150,000
Salvage Value: ₱10,000

Office Equipment
Date Acquired: March 1, 2017
Useful Life: 8
Cost: ₱350,000
Salvage Value: ₱50,000

Required
a. Give the adjusting entry to record periodic depreciation for each of the above properties for December 31, 2017.
b. Show how these items should be presented in the Income Statement for the year, 2017 and in the Statement of Financial Position as
at December 31, 2017.

4. Using the data in Exercise 3, answer the same requirements for the year 2018.

5. Prepare the adjusting entries on December 31, 2017 based on the following information.

a. Received a 6%, 30-day note for ₱8,000 from a customer dated December 12, 2017.
b. A note for ₱250,000 was discounted with BPI at 18% for 60 days on December 16 which was debited to Interest Expense.
c. Cash received in advance and credited to Lease Income for two lease contracts on machinery as follows:

Machinery Model: Machine X

Contract Date: December 1, 2016
Terms: 15 months
Amount: ₱600,000

Machinery Model: Machine Y

Contract Date: August 1, 2017

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 BACHELOR OF SCIENCE IN MASS COMMUNICATION MINOR IN ACCOUNTANCY AND CULINARY ARTS
LUZON VISAYAS MINDANAO UNIVERSITY OF THE PHILIPPINES
4TH TERM, A.Y. 2088-2100
LIST OF ACTIVITIES
Terms: 6 months
Amount: ₱520,000

d. Prepaid Insurance of ₱6,000 is for one and a half years starting October 1, 2016.
e. The merchandise inventory sheets showed a total amount of ₱145,000 including goods still in transit of ₱55,000 under the term FOB
Shipping Point, Freight Collect.

6. On December 31, 2017, Roxas Flower Shop received a bill for using the ground floor of Dona Isabel Building in the amount of ₱15,000. On
January 5, 2018, the bill was paid.

a. Prepare the journal entry to adjust for accrued rent on December 31, 2017.
b. Set up T accounts for rent expense and for accrued rent. Post the adjusting entry. Determine the balances that should appear in the
financial statements.
c. Prepare the journal entry to record the payment on January 5, 2018.
d. Using T Accounts, enter the balance(s) from last year, if any, post the entries from c and d above.
e. Based on the balances of your T accounts, how much rent expense will be presented in the 2018 income statement and how much
accrued rent will be presented in the 2018 statement of financial position?

7. The following is a trial balance of Villar Trading (thousands omitted) as of December 31, 2017:

Cash on Hand: Debit Balance ₱25

Cash in Bank: Debit Balance ₱175
Accounts Receivable: Debit Balance ₱110
Allowance for Bad Debts: Credit Balance ₱8
Notes Receivable (1 year, 15% due July 1, 2018): Debit Balance ₱80
Merchandise Inventory January 1: Debit Balance ₱198
Prepaid Rent: Debit Balance ₱30
Supplies Inventory: Debit Balance ₱4
Furniture & Fixtures: Debit Balance ₱60
Accumulated Depreciation: Credit Balance ₱10
Accounts Payable: Credit Balance ₱16
Loan Payable (2 year - 18% due August 1, 2020): Credit Balance ₱80
Villar, Capital: Credit Balance ₱100
Villar, Drawings: Debit Balance ₱16
Purchases: Debit Balance ₱850
Freight In: Debit Balance ₱15
Input Tax: Debit Balance ₱104
Purchase Returns & Allowances: Credit Balance ₱19
Purchase Discounts: Credit Balance ₱8
Sales: Credit Balance ₱1,500
Output Tax: Credit Balance ₱192
Sales Returns & Allowances: Debit Balance ₱25
Sales Discount: Debit Balance ₱16
Freight Out: Debit Balance ₱19
Salaries & Wages: Debit Balance ₱72
Taxes Expense: Debit Balance ₱75
Utilities Expense: Debit Balance ₱64
Commission Income: Credit Balance ₱5

The following additional information was provided (thousands omitted):

1. The policy of the company is to increase the allowance for bad debts to 10% of the accounts receivable.
2. Store furniture & fixtures were acquired on January 1, 2016 with a salvage value of ₱10 and a useful life of five years.
3. Accrue interest on the note.
4. Accrue interest on the loan.
5. Store rent was paid in advance for three months on December 1, 2017.
6. Salaries of ₱6 for December were not yet paid.

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 BACHELOR OF SCIENCE IN MASS COMMUNICATION MINOR IN ACCOUNTANCY AND CULINARY ARTS
LUZON VISAYAS MINDANAO UNIVERSITY OF THE PHILIPPINES
4TH TERM, A.Y. 2088-2100
LIST OF ACTIVITIES
7. Commission income was collected in advance for one thousand books. Two hundred books are still unsold as of December 31.
8. Accrue taxes from VAT.
9. Inventory count showed ₱85 goods are still unsold as of December 31, 2017.

Required:
a. Prepare a ten column working paper.
b. Prepare the adjusting entries as of December 31.
c. Prepare the income statement using the function of expense format. Three fourths of utilities was for the store. Two thirds of salaries
was for the store.
d. Prepare a capital statement for the year ended.
e. Prepare a properly classified statement of financial position as at December 31.
f. Prepare closing entries as of December 31, 2017. Make postings to the Income Summary, T Account, and the Capital account.
Compare the T account balances against the net income or net loss in c) above and the Capital statement in d) above to prove the
balances.
g. Give the reversing entries as at January 1, 2018.

8. Refer to Exercise 7. Financial analysis to evaluate profitability, liquidity, and solvency of the firm.

9. The following transactions occurred for a new resort prior to and during the first month of operations. Study the transactions shown below and
record the necessary journal entries. Prepare Journal Entries and Postings to T ledger accounts (T accounts).

a. Don Carmelo invested his land worth ₱300,000 in Boracay as well as ₱250,000 cash deposited in the business bank account.
b. Paid ₱108,000 cash to put up the resort.
c. Borrowed ₱300,000 on a mortgage payable at 8% interest.
d. Paid ₱285,400 cash for resort improvements.
e. Equipment was purchased for ₱48,000, paying ₱12,000 cash and the balance owed on a note payable.
f. Furnishings were purchased for ₱120,000 cash.
g. Linen inventory was purchased for ₱7,894 cash.
h. Supplies were purchased for ₱4,200 on account:
i. Vending inventory was purchased for ₱5,400 cash.
j. Room sales revenue during the month was ₱88,740; 95% cash and 5% credit cards (use the credit title credit card receivables).
k. Vending sales revenue from vending machines was ₱8,800 cash.
l. Wages of ₱31,200 cash were paid less 5% withholding tax, 3% SS Premiums, 2% Pag-Ibig, and 1% PhilHealth Premiums.
m. Paid ₱3,200 on accounts payable.
n. Paid ₱4,200 on an annual insurance policy.
o. Paid ₱15,000 on mortgage payable plus one month interest.

Prepare a chart of accounts. Open T accounts and make postings. Extract the balances and prepare a 6 column worksheet. Enter the
adjustments in the worksheet and get the adjusted trial balance. The following are the adjustment data:

1. Value for the linen inventory, ₱7,220 and for the vending inventory, ₱1,200.
2. Wages earned by casual employees but unpaid are ₱4,160.
3. One-twelfth on the prepaid insurance has been consumed.
4. Interest owing, but not yet paid, on the equipment note payable account is 1% of the balance owing at month-end.
5. Equipment has a 10-year life and a ₱3,000 residual value.
6. Furnishings have an 8-year life and a ₱7,000 residual value.
7. Building has a 20-year life and a ₱42,000 residual value.
8. Supplies used during the first month are ₱530.

10. You have been engaged to prepare the financial statements for Credo’s Auto Supply at the close of its annual calendar period on December
31, 2017. Its general ledger shows the following balances (thousands omitted):

Cash on Hand: Debit Balance ₱48

Cash in Bank: Debit Balance ₱375
Accounts Receivable: Debit Balance ₱64
Supplies Inventory: Debit Balance ₱3
Merchandise Inventory January 1: Debit Balance ₱165

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 BACHELOR OF SCIENCE IN MASS COMMUNICATION MINOR IN ACCOUNTANCY AND CULINARY ARTS
LUZON VISAYAS MINDANAO UNIVERSITY OF THE PHILIPPINES
4TH TERM, A.Y. 2088-2100
LIST OF ACTIVITIES
Prepaid Interest: Debit Balance ₱6
Store Equipment: Debit Balance ₱144
Office Furniture & Fixtures: Debit Balance ₱50
Accounts Payable: Credit Balance ₱8
Loans Payable: Credit Balance ₱100
Credo, Capital: Credit Balance ₱470
Credo, Personal: Debit Balance ₱26
Sales: Credit Balance ₱897
Output Tax: Credit Balance ₱107
Sales Discount: Debit Balance ₱16
Purchases: Debit Balance ₱310
Input Tax: Debit Balance ₱68
Purchase Discounts: Credit Balance ₱4
Freight In: Debit Balance ₱1
Freight Out: Debit Balance ₱13
Sales Salaries Expense: Debit Balance ₱82
Utilities Expense: Debit Balance ₱90
Rent Expense: Debit Balance ₱108

Additional data for adjustment (thousands omitted):

1. Merchandise on hand on December 31, 2017 is 50% of the total available for sale during the period.
2. Supplies used up amounted to ₱2 of which ₱1 was for office use.
3. The estimated life of the store equipment is 10 years, ₱60 of which represented Credo’s investment on January 1 of the current year with
the balance acquired six months after.
4. The office furniture & fixtures has a depreciation rate of 20% per year.
5. A note for 120 days was discounted at 18% by the bank on the loan obtained from them on December 11, 2013.
6. Rent Expense represents one year rent paid on July 1, 2017. One fourth of the space was for office use.
7. Unpaid utility bills amounted to ₱4. One fourth of utilities was for office use.

Required:
1. Prepare a 10-column worksheet.
2. Prepare an income statement using the function of expense format.
3. Prepare a properly classified statement of financial position supported by a capital statement.
4. Prepare the closing entries and the post closing trial balance.
5. Prepare reversing entries.
6. Compute for the following ratios:
a. Profitability ratio (net income/net sales) which must not be less than 10%. Is the business profitable? Provide it with one
short sentence only.
b. Liquidity ratio (current assets/current liabilities) which is satisfactory at a ratio of more than 1:5:1. Is the business liquid?
Provide it with one short sentence only.
c. Debt and equity ratios. Is the company leaning more on liabilities to finance its operation? Provide it with one short sentence
only.
d. Efficiency ratios for receivable and inventory holding periods at 60 days and 120 days, respectively.