Problem 1-1

Chemical Company failed to recognize accruals and prepayments since the inception of its business three
years ago. The accruals and prepayments at the end of 2014 are given below:

Prepaid insurance P 60,000

Accrued wages 75,000
Rent revenue collected in advance 96,000
Interest receivable 81,000

The net income (loss) before adjustments is (P 67,000).

Question:
1. What is the correct net income (loss) of the business for the year 2014?
Answer: (97,000)

Problem 1-2
Cadillac Company provided you the following information for the current year:

Interest receivable, April 1 P 80,400

Accrued Salaries & Wages, March 31 112,500
Deferred interest revenue, April 1 97,300
Prepaid Salaries & Wages, March 31 144,700
Accrued Salaries & Wages, April 1 132,100
Interest receivable, March 31 67,800
Prepaid Salaries & Wages, April 1 155,900
Deferred interest revenue, March 31 92,600

The Company also provided you the Cash ledger balance composition:
Cash
Beg. Bal 730,200
Interest 1,200,800 1,666,700 Salaries & Wages

End Bal 264,300

Aside from the information provided, there are no other relevant transactions incurred during the current
year.

Questions:
2. How much is the interest revenue earned during the current year?
3. How much is the Salaries & Wages expense incurred during the current year?
4. What net amount relating to the above transactions shall be included in the income statement for
the current year ended?
Answers:
1,192,900
1,658,300
(465,400)

Problem 1-3
Aby Company started its operations during 2008 and provided you the following information as of May
31, 2011:
 Liabilities P 630,000
Equity 65% of the total resources of the company

You noted the following:

 A machine costing P 350,000 was recognized as maintenance expense on January 1, 2009. It was
ascertained that the cost should have been recognized as an asset and depreciated under straight-
line over a 10 year useful life to P 80,000 residual value.
 The following items are omitted:

June 2008 – May 2009 June 2009 – May 2010 June 2010 – May 2011
Wages payable P 20,000 P 14,000
Prepaid insurance 66,000 P 24,000 P 51,000

 Customer cash advances amounting to P 70,000 and P 90,000 were received at the end of fiscal
yearend 2010 and 2011 respectively, and were recorded as outright revenues.
 Net income (loss) during the fiscal yearend 2009, 2010, and 2011 were (P 160,000), P 270,000,
and P 180,000, respectively.

Questions:
5. What is the adjusted net income (loss) for the fiscal year-end 2008 - 2009?
6. What is the adjusted net income (loss) for the fiscal year-end 2009 - 2010?
7. What is the adjusted net income (loss) for the fiscal year-end 2010 - 2011?
8. What is the adjusted capital of the company as of May 31, 2011?
Answers:
224,750
151,000
146,000
1,401,750