02 ELMS ACTIVITY 1

Case 1. Tim Corporation reported total purchases of P3,200,000 in its accrual basis financial statement on December 31,
2X20. Additional information revealed the following:

Accounts Payable, December 31, 2X19 P 900,000

Accounts Payable, December 31, 2X20 1,250,000

 What is the amount of purchase under the cash basis on December 31, 2X20 ?
Solution:

Purchases, Accrual P 3,200,000

Accounts Payable, December 31, 2X19 900,000
Accounts Payable, December 31, 2X20 (1,250,000)
Purchases, Cash Basis P 2,850,000

Case 2. Under the accrual basis, the rental income of Patrick Company for 2X20 is P600,000. Additional information
regarding rental income are presented below:

Unearned rental income, January 1, 2X20 P 50,000

Unearned rental income, December 31, 2X20 75,000
Accrued rental income, January 1, 2X20 30,000
Accrued rental income, December 31, 2X20 40,000

 Under the cash basis, how much rental income should be reported by Patrick Company in 2X20?

Solution:

Rental Income, 2X20 Accrual P 600,000

Unearned rental income, January 1, 2X20 (50,000)
Unearned rental income, December 31, 2X20 75,000
Accrued rental income, January 1, 2X20 30,000
Accrued rental income, December 31, 2X20 (40,000)
Rental Income, Cash Basis P 615,000

Case 3. Don Mario Company acquires copyright from authors, paying in advance royalties in some cases and others,
paying royalties within 30 days of year-end. Don Mario reported royalty expense of P375,000 for the year ended
December 31, 2X20. The following data are included in the corporation’s December balance sheet:

2X19 2X20
Prepaid Royalties P 60,000 P 50,000
Royalties Payable 75,000 90,000

 Under the cash basis, what amount of royalty expense should be reported in 2X20 profit or loss?

Solution:

Royalties Expense, Accrual P 375,000

Royalties Payable, 2X19 75,000
Royalties Payable, 2X20 (90,000)
Prepaid Royalties ,2X19 (60,000)
Prepaid Royalties, 2X20 50,000
Royalties Expense, Cash Basis P 350,000