Since 1977

FAR OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2854-Cash to Accrual and Single Entry MAY 2020

DISCUSSION PROBLEMS
1. The following relate to Panda Company’s patents LECTURE NOTES:
assigned to other entities:
January 1 December 31 Cash to Accrual - Expense
Royalties receivable P500,000 P1,500,000
Cash basis expense (Disbursements) Pxx
Unearned royalties 200,000 600,000
Accrued expense (Payable), ending xx
During the year, Panda received royalty remittance of Accrued expense (Payable), beginning ( xx)
P5,000,000. In its income statement for the current Prepaid expense, ending ( xx)
year, Panda should report royalty income of Prepaid expense, beginning xx
a. P6,400,000 c. P4,400,000 Accrual basis expense Pxx
b. P5,600,000 d. P3,600,000
4. Lane Company acquires copyrights from authors,
paying advance royalties in some cases, and in others,
LECTURE NOTES: paying royalties within 30 days of year-end. Lane
reported royalty expense of P375,000 for the current
Income and Expense Recognition year ended December 31. The following data are
included in Lane’s balance sheets.
Cash Basis Accrual Basis
January 1 December 31
Income Received Earned
Prepaid royalties P60,000 P50,000
Expense Paid Incurred
Royalties payable 75,000 90,000
Cash to Accrual - Income During the year, Lane made royalty payments totaling
a. P350,000 c. P380,000
Cash basis income (Receipts) Pxx
b. P370,000 d. P400,000
Accrued income (Receivable), ending xx
Accrued income (Receivable), beginning ( xx)
Unearned income, ending ( xx)
Use the following information for the next three questions.
Unearned income, beginning xx
Accrual basis income Pxx Poole Company paid or collected during the current year
the following items:
Insurance premiums paid P 15,400
2. Under the accrual basis, rental income of Macho
Interest collected 30,900
Company for the current calendar year is P60,000.
Salaries paid 135,200
Additional information regarding rental income are:
Accrued rental income, Dec. 31 P4,000 The following balances have been excerpted from Poole's
Accrued rental income, Jan. 1 3,000 balance sheets:
Unearned rental income, Dec. 31 7,500 December 31 January 1
Unearned rental income, Jan. 1 5,000 Prepaid insurance P 1,200 P 1,500
How much actual cash rental was received by Macho Interest receivable 3,700 2,900
Company in the current year? Salaries payable 12,300 10,600
a. P58,500 c. P62,500 5. The insurance expense on the income statement for
b. P61,500 d. P65,500 the current year was
a. P12,700 c. P15,100
3. Peak Company borrows money under various loan b. P15,700 d. P18,100
agreement involving notes discounted and notes
requiring interest payments at maturity. During the 6. The interest revenue on the income statement for the
current year ended December 31, Peak paid interest current year was
totaling P5,000,000. The balance sheets included the a. P24,300 c. P30,100
following: b. P31,700 d. P37,500
December 31 January 1
7. The salary expense on the income statement for the
Interest payable P2,500,000 P2,000,000
current year was
Prepaid interest 1,500,000 500,000
a. P112,300 c. P133,500
How much interest expense should Peak report for the b. P136,900 d. P158,100
current year?
a. P4,500,000 c. P3,500,000
b. P6,500,000 d. P5,500,000 8. The following balances were reported by Mall Co. at
January 1 and December 31 of the current year:
1/1 12/31
Inventory P290,000 P260,000
Accounts payable 50,000 75,000
Mall paid suppliers P490,000 during the year. What
amount should Mall report for cost of goods sold for
the current year?

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EXCEL PROFESSIONAL SERVICES, INC.

a. P545,000 c. P285,000 Use the following information for the next five questions.
b. P495,000 d. P435,000
You were given the following information obtained from
the single-entry records of Jessie Company:
9. The following data are from a comparison of the Jan. 1 Dec. 31
balance sheets of Alyssa Company as of December 31, Interest receivable P 1,500 P 1,200
2020, and December 31, 2019: Accounts receivable 67,500 132,000
Accounts Receivable increase P7,600 Notes receivable 22,500 18,000
Inventory decrease 4,500 Merchandise inventories 57,000 15,000
Accounts Payable increase 2,400 Store and office equipment (net) 48,750 45,000
Prepaid operating expenses 3,750 3,300
The following data are from Alyssa's 2020 income Interest payable 450 750
statement: Accounts payable 52,500 37,500
Notes payable 15,000 18,000
Sales P200,000
Accrued operating expenses 4,050 7,500
Cost of Goods Sold 110,000
How much cash was paid for inventory purchases? An analysis of the cashbook shows the following:
a. P116,900 c. P112,100 Balance, January 1 P22,500
b. P103,100 d. P107,900 Receipts:
Interest income P 3,000
Accounts receivable 54,000
10. Class Corp. maintains its accounting records on the Notes receivable 22,500
cash basis but restates its financial statements to the Share capital issuance 9,000 88,500
accrual method of accounting. Class had P60,000 in 111,000
cash-basis pretax income for the current year. The Disbursements:
following balances at January 1 and December 31 of Interest expense P 2,250
the current year are available: Accounts payable 78,000
12/31 1/1 Notes payable 12,000
Accounts receivable P40,000 P20,000 Operating expenses 25,500 117,750
Accounts payable 15,000 30,000 Balance, December 31 –
Under the accrual method, what amount of income bank overdraft (P6,750)
before taxes should Class report in its current year
income statement? QUESTIONS:
a. P25,000 c. P65,000 Based on the above and the result of your audit, determine
b. P55,000 d. P95,000 the following for the current year:

LECTURE NOTES: 12. Sales

a. P141,000 c. P118,500
Cash to Accrual – Net Income b. P145,500 d. P136,500

Cash basis net income (Receipts - Disbursements) Pxx 13. Cost of goods sold
Increase in assets xx a. P120,000 c. P105,000
Decrease in assets ( xx) b. P150,000 d. P 78,000
Increase in liabilities ( xx)
14. Operating expenses, excluding depreciation
Decrease in liabilities xx
a. P24,900 c. P28,500
Accrual basis net income Pxx
b. P28,950 d. P29,400
15. Interest income
11. The Retry Company uses cash-basis accounting for a. P2,700 c. P3,000
their records. During the year, Retry collected b. P2,550 d. P3,300
P500,000 from its customers, made payments of
16. Loss before tax
P200,000 to its suppliers for inventory, and paid
a. P12,000 c. P16,500
P140,000 for operating costs. Retry wants to prepare
b. P12,750 d. P10,200
accrual-basis statements. In gathering information for
the accrual-basis financial statements, Retry
discovered the following:
17. The following information relates to the Gates
a. Customers owed Retry P50,000 at the beginning
Corporation:
and P35,000 at the end of the year.
b. Retry owed suppliers P20,000 at the beginning and Net assets, end of year P650,000
P27,000 at the end of the year. Net assets, beginning of year 300,000
c. Retry's beginning inventory was P42,000, and its Additional investment by shareholders 100,000
ending inventory was P44,000. Dividends paid 150,000
d. Retry had prepaid expenses of P5,000 at the Other comprehensive income for the year 80,000
beginning and P7,400 at the end of the year.
Profit for the year is
e. Retry had accrued expenses of P12,000 at the
a. P480,000 c. P350,000
beginning and P19,000 at the end of the year.
b. P400,000 d. P320,000
f. Depreciation for the year was P51,000.
Determine the accrual basis net income of Retry
Company for the current year.
a. P79,600 c. P91,400
b. P84,400 d. P98,400

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EXCEL PROFESSIONAL SERVICES, INC.

SOLUTION GUIDE: Increase

(Decrease)
Equity, ending Pxx Cash P95,500
Equity, beginning ( xx) Accounts receivable, net 92,000
Net change in equity – Increase (Decrease) xx Inventory (30,000)
Contributions from owners ( xx) Buildings and Equipment (net) 190,000
Distribution to owners xx Patents (5,000)
Comprehensive income xx Accounts payable (75,000)
Other comprehensive income (OCI) ( xx) Bonds payable 150,000
Profit or loss Pxx Share capital 100,000
Share premium 50,000

18. Changes in the statement of financial position account Calculate the net income for the year assuming that no
balances for the Peak Sales Co. during the year follow. transactions other than the dividends affected retained
Dividends declared during the year were P25,000. earnings.
a. P117,500 c. P267,500
b. P142,500 d. P292,500

- now do the DIY drill -

DO-IT-YOURSELF (DIY) DRILL

1. Tsuen Company which began operations on January 1, Use the following information for the next three questions.
2019 has elected to use cash basis accounting for tax
The income statement of Carsen Corporation for 2020
purposes and accrual accounting for its financial
included the following items:
statements. Tsuen reported sales of P6,000,000 and
P5,000,000 in its tax return for years 2020 and 2019 Interest income P95,500
respectively. Tsuen reported accounts receivable of Salaries expense 75,000
P1,500,000 and P500,000 in its balance sheets as of Insurance expense 12,600
December 31, 2020 and 2019 respectively. What
amount should Tsuen report as sales in its income The following balances have been excerpted from Carsen
statement for 2020? Corporation's balance sheets:
a. P7,000,000 c. P5,000,000
b. P6,000,000 d. P4,000,000 12/31/2020 12/31/2019
Accrued interest receivable P9,100 P7,500
2. Tsing Company reported collections from customers of Accrued salaries payable 8,900 4,200
P6,000,000 for the year ended December 31, 2020. Prepaid insurance 1,100 1,500
Additional information follows: 5. The cash received for interest during 2020 was
12/31/2019 12/31/2020 a. P86,400 c. P93,900
Accounts receivable P1,000,000 P3,000,000 b. P95,500 d. P97,100
Allowance for doubtful 6. The cash paid for salaries during 2020 was
accounts ( 100,000) (150,000) a. P79,700 c. P70,300
Tsing wrote off uncollectible accounts totaling b. P70,800 d. P83,900
P500,000 during 2020. Under accrual basis, Tsing 7. The cash paid for insurance premiums during 2020 was
would report 2020 sales of a. P11,500 c. P11,100
a. P8,500,000 c. P8,000,000 b. P13,000 d. P12,200
b. P4,500,000 d. P8,550,000
8. The company's accounting records show that changes
3. During 2020, Kew Company, a service organization, in ledger account balances occurred during 2020 as
had P200,000 in cash sales and P3,000,000 in credit follows:
sales. The accounts receivable balances were
Increase Decrease
P400,000 and P485,000 at December 31, 2019 and
Cash P800,000
2020, respectively. If Kew desires to prepare a cash
Accounts receivable (net) P40,000
basis income statement, how much should be reported
Inventories 300,000
as sales for 2020 on a cash basis?
Equipment (net) 360,000
a. P3,285,000 c. P3,115,000
Building (net) 600,000
b. P3,200,000 d. P2,915,000
Loans payable 1,000,000
Accounts payable 300,000
4. During the year ended December 31, 2020. Pine
Share capital, P10 par 600,000
Company paid P46,000 for interest, but Pine's 2020
Share premium 200,000
income statement properly reported interest expense
Retained earnings ?
of P50,000. There was no prepaid interest either at
the beginning or at the end of 2020. Accrued interest Assuming that there were no transactions affecting
at December 31, 2020 amounted to P5,000. How retained earnings other than the P250,000 cash
much was the accrued interest at December 31, 2019? dividends, compute the net income for 2020.
a. P5,000 c. P4,000 a. P770,000 c. P2,170,000
b. P1,000 d. P 0 b. P520,000 d. P 270,000

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