MUSIC MART, INC

Following is the latest Statement of Financial Position of Music Mart, Inc:

Music Mart, Inc

Statement of Financial Position
January 4, 20A
ASSETS LIABILITIES and OWNER’S EQUITY
Cash P33,250 Notes Payable P12,500
Merchandise Inventory 4,500 Paid-in Capital 25,000
Retained Earnings 250
---------- ------------
Total P37,750 Total P37,750
====== =======

The following events occurred in January. Record the effect(s) of each of the events in the Statement of
Financial Position. Prepare the Statement of Financial Position as of the end of the month.

1. The store purchased and received merchandise for inventory for P5,000, agreeing to pay within
30 days.
2. Merchandise costing P1,500 was sold for P2,300, which was received in cash.
3. Merchandise costing P1,700 was sold for P2,620, the customers agreeing to pay P2,620 within
30 days.
4. The store purchased a 3-year fire insurance policy for P1,224, paying cash.
5. The store purchased two lots of land of equal size for a total of P24,000. It paid P6,000 in cash
and gave a 10-year mortgage for P18,000.
6. The store sold one of the two lots of land for P12,000. It received P3,000 cash, and in addition,
the buyer assumed P9,000 of the mortgage; that is, Music Mart Inc became no longer
responsible for this half.
7. Smith received a bona fide offer of P33,000 for the business; although his equity was then only
P26,970, he rejected the offer. It was evident that the store had already acquired goodwill of
P6,030.
8. Smith withdrew P1,000 cash from the store’s bank account for his personal use.
9. Smith took merchandise costing P750 from the store’s inventory for his personal use.
10. Smith learned that the individual who purchased the land (#6 above) subsequently sold it for
P14,000. The lot, still owned by Music Mart, Inc, was identical in value with the other plot.
11. The store paid off P6,000 of its notes payable (disregard interest).
12. Smith sold 1/3 of the stock he owned in Music Mart, Inc for P11,000 cash.
13. Merchandise costing P850 was sold for P1,310, which was received in cash.

(Adapted from Anthony & Reece, Accounting Text and Cases, 9th ed).