NAME: ________________________________ DATE: ____________

PROBLEM 1

Pampanga Enterprise records all transactions on the cash basis. The company’s accountant
prepared the following income statement at the end of the company’s first year of operations.

You have been asked to prepare an income statement on the accrual basis. The following
information is given to you to assist in the preparation:

a) Amounts due from customers at year-end were Php224,000. Of this amount, Php24,000 will
probably not be collected.
b) Salaries of Php88,000 for December 2019 were paid on January 5, 2020.
c) Pampanga rent its building for Php24,000 a month, payable quarterly in advance. The
contract was signed on January 1, 2019.
d) The bill for December’s utility costs of Php21,600 was paid January 10, 2020.
e) Equipment of Php240,000 was purchased on January 1, 2019. The expected life is 5 years, no
salvage value. Assume straight line depreciation.
f) Commission of 15% of sales are paid on the same day cash is received from customers.
g) A 1-year insurance policy was issued in company assets on July 1, 2019. Premiums are paid
annually in advance.
h) Pampanga borrowed Php400,000 for one year on May 1, 2019. Interest payments based on
an annual rate at 12% are made quarterly, beginning with the first payment on August 1, 2019.

Requirement: How much is the net income before income tax under the accrual basis of
accounting?
PROBLEM 2

You were able to gather the following in connection with your audit of the Baguio Company for
the year ended December 31, 2019:

During the year:

Requirements:

1) Net sales for 2019

2) Net purchases for 2019
3) Wages expenses for 2019
4) Advertising expenses for 2019
5) Insurance expenses for 2019

PROBLEM 3

The income statement of Cavite Corporation for 2019 included the following items:

The following balances have been excerpted from Cavite Corporation’s statement of financial
position: