EXERCISES

A. IDENTIFY THE USER OF THE FINANCIAL INFORMATION

1. Interested in information about the stability and profitability of

employers and information which enables them to assess the ability of the
enterprise to provide remuneration, retirement benefits and employment
opportunities.

2. Interested in information about the continuance of an enterprise

especially when they have a long-term involvement with, or are
dependent on, the enterprise.

3. Need information to help them determine whether they should buy,

hold or sell their investments.
4. Interested in the allocation of resources and, therefore, the activities of
the enterprise. Require information in order to regulate the activities of
the enterprise, determine taxation policies, and as the basis for national
income and similar statistics.

6. Need information
5. Interested about that
in information the enables
trends and
themrecent developments
to determine whetherintheir
the
prosperity of the enterprise and the range of its
loans and related interest will be paid when due. activities.
Need information about the trends and recent developments in the
prosperity of the enterprise and the range of its activities.

B. IDENTIFY WHICH BASIC ACCOUNTING PRINCIPLES OR CONCEPTS ARE VIOLATED IN THE

FOLLOWING SITUATIONS

1. The owner of the business bought a car for personal use. The invoice
was given to the accountant who recorded it as the asset of the business.

2. Purchased an equipment at a cost of P100,000 which was immediately

recognized as an expense even if the equipment's useful life is 5 years.

3. The company ordered raw materials for its production. Upon order, the
raw materials were listed as one of the assets of the business.

4. No financial statements were prepared by Sonia Santos for her

business. She explained that she will prepare the financial statements
when she closes the business which she predicted to take place after thirty
years.

5. The company included an equipment purchased from Europe. It was

reported in the statement of financial position at 2,500 Euros. All other
assets were reported in Philippine Pesos.
C. DETERMINE THE EFFECT OF THE FOLLOWING TRANSACTIONS ON THE ACCOUNTING
ELEMENTS OF ASSETS, LIABILITIES, CAPITAL, WITHDRAWAL, REVENUE, AND EXPENSES.
Date Transactions Effects
Cruz opened a repair shop business by investing cash of Dr Cr
Jun 2 P200,000. + Asset Cash + Capital Cruz , Capital

3 Paid P2,500 for monthly rent.

4 Purchased equipment on account from AVENSON, P25,000.

7 Rendered repair services for cash, P7,000.

Purchased repair supplies on account from Aze Hardware,
10 P2,000.

12 Returned defective supplies because of defect, P500.

Hired an assistant for a monthly salary of P5,000. The assistant
13 will start reporting for duty on June 15,2012.
Rendered repair services on account: Bartolome - P3,000;
15 Stefano - P5,000; and Mateo, P2,000.
Paid in full the account with Aze Hardware and paid P12,500 of
18 the AVENSON account.
Collected customers' account: Bartolome - P3,000; and Stefano
22 - P2,500.

28 Cruz withdrew cash for personal use, P3,000.

30 Received and paid MERALCO bill, P2,800.

30 Paid the assistant's salary, P2,500.

D. USING THE TRANSACTIONS GIVEN IN EXERCISE C AND THE CHART OF ACCOUNTS
GIVEN BELOW, COMPLETE THE ACCOUNTING CYCLE.

CRUZ REPAIR SHOP

CHART OF ACCOUNTS
Increase Decrease Nominal SFP
ASSETS (+) (-) or Real? or SI
101 Cash Dr Cr Real SFP
102 Accounts Receivable
103 Allowance for Bad Debts
104 Supplies
105 Equipment
106 Accumulated Depreciation

LIABILITIES
201 Accounts Payable
202 Utilities Payable

EQUITY
301 Cruz, Capital
302 Cruz, Drawing
303 Income and Expense Summary Nominal

REVENUE
401 Repairs Revenue

EXPENSES
501 Rent Expense
502 Salaries Expense
503 Supplies Expense
504 Utilities Expense
505 Bad Debts Expense
506 Depreciation Expense

ADDITIONAL INFORMATION FOR ADJUSTMENT:

1 The equipment acquired on June 4, 2012 has an estimated useful life
of 5 years with an estimated residual value of P1,000. It is the company's
policy to depreciate the asset for full month on the month of acquisition
and no depreciation is recognized on the month of disposal.

2 It is estimated that P300 of accounts receivable will prove to be

uncollectible.

3 Unpaid PLDT and Maynilad bills for the month of June are P270 and P130,
respectively.

4 Supplies used up, P700.

E. ADJUSTING JOURNAL ENTRIES
Prepare the adjusting journal entries and determine the adjusted balances of the
accounts based on the information given below:
1. Depreciation
The company purchased an equipment for P250,000 on July 1, 2011.

The company estimated that the equipment will have a useful life of 5
years and a salvage value of P5,000. It is the company's policy to
depreciate the equipment on a straight-line basis.
BEFORE ADJUSTMENT AFTER
Equipment 250,000
Accumulated Depc'n 0
Carrying value 250,000

Depreciation Expense 0

Adjusting Journal Entry: Dr Cr

2. Bad Debts

The company estimates that 2% of accounts receivable will prove to

be uncollectible.
BEFORE ADJUSTMENT AFTER
Accounts Receivable 300,000
Allowance for Bad Debts 4,500
Net Realizable Value 295,500

Bad Debts Expense 0

Adjusting Journal Entry: Dr Cr

3. Accrued Expenses
***Accrued expenses are expenses already incurred but not yet paid.
Received a bill from Meralco on January 3, 2012 for the
December 2011 energy consumption, P3,000.
BEFORE ADJUSTMENT AFTER
Utilities Payable 0
Utilities Expense 29,700

Adjusting Journal Entry: Dr Cr

4. Accrued Revenues
***Accrued revenues are revenues already earned but not yet received.
 The company sublet its office for a P2,500 monthly rental to be paid
on the 5th day of the following month.
BEFORE ADJUSTMENT AFTER
Rent Receivable 0
Rent Income 27,500

Adjusting Journal Entry: Dr Cr

5. Prepaid Expenses
***Prepaid Expenses are expenses already paid but not yet incurred.
The company paid a 1-year insurance of P12,000 on May 1, 2011.
BEFORE ADJUSTMENT AFTER
Prepaid Insurance 12,000
asset method

Insurance Expense 0

Adjusting Journal Entry: Dr Cr

What if?
BEFORE ADJUSTMENT AFTER
Prepaid Insurance 0
expense method

Insurance Expense 12,000

Adjusting Journal Entry: Dr Cr

6. Unearned Revenues
***Unearned revenues are revenues already received but not yet earned.
The company received advance rental payment for 6 months of
P36,000 on September 1, 2011.
BEFORE ADJUSTMENT AFTER
Unearned Rent Income 36,000
liability method

Rent Income 0

Adjusting Journal Entry: Dr Cr

What if?
BEFORE ADJUSTMENT AFTER
Unearned Rent Income 0
revenue method

Rent Income 36,000

Adjusting Journal Entry: Dr Cr

F. FINANCIAL STATEMENT ANALYSIS

Refer to the Financial Statements of ABC Corporation and perform (1) Vertical Analysis,
(2) Horizontal Analysis and (3) Ratio Analysis.

G. INTERNAL CONTROL
Indicate the internal control weakness and the internal control principle that is
violated in the following internal control procedures for cash.

1. Two cashiers register all over-the-counter payments. They use only one
cash register.

2. All cashiers are experienced; thus they are not bonded.

3. To minimize the risk of theft, cash in excess of P5,000 is stored in an

unlocked brief case in the stock room until it is deposited in the bank.
4. At the end of each day, the accountant counts the cash in the brief case;
he is also responsible for depositing the amounts in the bank.

5. The owner gives the store manager twenty blank but signed checks
weekly.
6. The store manager approves all payments before signing. He also
releases the checks to payees.
7. The accountant prepares the monthly bank reconciliation. He is
required to report any discrepancy to the owner.

H. Refer to the cash records and bank statement of XYZ, Inc. Based on the information given,
prepare a bank reconciliation.
 General Journal

Date Particulars f Dr
Jun 2 Cash 101 200,000.00
Cruz, Capital 301
Investment.

3 Rent Expense 501 2,500.00

Cash 101
Payment for June rent.

4 Equipment 105 25,000.00

Accounts Payable - AVENSON 201/
Purchased equipment on account.

7 Cash 101 7,000.00

Repairs Revenue 401
Rendered services.

10 Supplies 104 2,000.00

Accounts Payable - Aze Hardware 201/
Purchased supplies on account.

12 Accounts Payable - Aze Hardware 201/ 500.00

Supplies 104
Returned defective supplies.

13 Hired an assistant for a monthly salary of P5,000.

15 Accounts Receivable - Bartolome 102/ 3,000.00

Accounts Receivable - Stefano 102/ 5,000.00
Accounts Receivable - Mateo 102/ 2,000.00
Repairs Revenue 401
Rendered services on account.

18 Accounts Payable - Aze Hardware 201/ 1,500.00

Accounts Payable - AVENSON 201/ 12,500.00
Cash 101
Payment of Accounts.
 General Journal

Date Particulars f Dr
Jun 22 Cash 101 5,500.00
Accounts Receivable - Bartolome 102/
Accounts Receivable - Stefano 102/
Collected customers' accounts.

28 Cruz, Drawimgs 302 3,000.00

Cash 101
Withdrew cash.

30 Utilities Expense 504 2,800.00

Cash 101
Paid Meralco bill.

Salaries Expense 502 2,500.00

Cash 101
Paid Assistant's salary.
 General Journal

Date Particulars f Dr
Page 1

Cr

200,000.00

2,500.00

25,000.00

7,000.00

2,000.00

500.00

Memo entry or Memorandum Entry

10,000.00

14,000.00
Page 2

Cr

3,000.00
2,500.00

3,000.00

2,800.00

2,500.00
Page 3

Cr
 GENERAL LEDGER

CASH
Date Particulars f Dr Date Particulars f
Jun 2 Investment GJ1 200,000.00 Jun 3 June rent. GJ1
7 Services rendered 7,000.00 18 Payment of accounts
22 Collection of accounts GJ2 5,500.00 28 Withdrawal GJ2
30 Meralco
Assistant's Salary
212,500.00
187,700.00

ACCOUNTS RECEIVABLE
Date Particulars f Dr Date Particulars f
15-Jun Bartolome GJ1 3,000.00 22-Jun Collection GJ2
Stefano 5,000.00 Collection
Mateo 2,000.00
10,000.00
4,500.00

ALLOWANCE FOR BAD DEBTS

Date Particulars f Dr Date Particulars f

SUPPLIES
Date Particulars f Dr Date Particulars f
10-Jun Purchase GJ1 2,000.00 12-Jun Returns GJ1
1,500.00

EQUIPMENT
Date Particulars f Dr Date Particulars f
Jun 4 Acquisition/Purchase GJ1 25,000.00
 ACCUMULATED DEPRECIATION
Date Particulars f Dr Date Particulars f

ACCOUNTS PAYABLE
Date Particulars f Dr Date Particulars f
12-JunReturn defective supplies. GJ1 500.00 Jun 4 Purchase of equipment. GJ1
18 Payment of account 1,500.00 10 Purchase of supplies
Payment of account 12,500.00
14,500.00

UTILITIES PAYABLE
Date Particulars f Dr Date Particulars f

CRUZ, CAPITAL
Date Particulars f Dr Date Particulars f
Jun 2 Investment GJ1

CRUZ, DRAWING
Date Particulars f Dr Date Particulars f
28-Jun Cash withdrawal GJ2 3,000.00

INCOME AND EXPENSE SUMMARY

 Date Particulars f Dr Date Particulars f

REPAIRS REVENUE
Date Particulars f Dr Date Particulars f
Jun 7 Services rendered GJ1
15 Services rendered

RENT EXPENSE
Date Particulars f Dr Date Particulars f
Jun 3 Payment for June rent GJ1 2,500.00

SALARIES EXPENSE
Date Particulars f Dr Date Particulars f
30-Jun Assistant's Salary GJ2 2,500.00

SUPPLIES EXPENSE
Date Particulars f Dr Date Particulars f

UTILITIES EXPENSE
Date Particulars f Dr Date Particulars f
Jun 30 Meralco GJ2 2,800.00
 BAD DEBTS EXPENSE
Date Particulars f Dr Date Particulars f

DEPRECIATION EXPENSE
Date Particulars f Dr Date Particulars f
101 Date f Particulars Dr Cr Balance
Cr Jun 2 GJ1 investment 200,000 200,000
2,500.00 3 june rent 2,500 197,500
14,000.00
3,000.00
2,800.00
2,500.00
24,800.00

102
Cr
3,000.00
2,500.00

5,500.00

103
Cr

104
Cr
500.00

105
Cr
106
Cr

201
Cr
25,000.00
2,000.00

27,000.00
12,500.00

202
Cr

301
Cr
200,000.00

302
Cr

303
Cr

401
Cr
7,000.00
10,000.00
17,000.00

501
Cr

502
Cr

503
Cr

504
Cr
505
Cr

506
Cr
 SUBSIDIARY LEDGERS

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER OR CUSTOMERS' CARD

CUSTOMER'S NAME: Bartolome

Date Particulars f Dr Cr
15-Jun Services rendered GJ1 3,000
22 Collection GJ2 3,000.00

CUSTOMER'S NAME: Stefano

Date Particulars f Dr Cr
15-Jun Services rendered GJ1 5,000
22 Collection GJ2 2,500.00

CUSTOMER'S NAME: Mateo

Date Particulars f Dr Cr
15-Jun Services rendered GJ1 2,000

ACCOUNTS PAYABLE SUBSIDIARY LEDGER OR SUPPLIERS' CARD

SUPPLIER'S NAME: AVENSON

Date Particulars f Dr Cr
SI# 21345; terms: n/30; purchase of
Jun 4 equipment GJ1 25,000.00
18 Partial payment 12,500.00

SUPPLIER'S NAME: AZE HARDWARE

Date Particulars f Dr Cr
10-Jun Purchase of supplies GJ1 2,000.00
12 Return defective supplies 500.00
18 Full payment 1,500.00
RS

Balance
3,000
-

Balance
5,000
2,500.00

Balance
2,000

Balance

25,000.00
12,500.00

Balance
2,000.00
1,500.00
-
CRUZ REPAIR SHOP
TRIAL BALANCE
JUNE 30, 2012
Amounts in Philippine Peso

Dr Cr
Cash 187,700.00
Accounts Receivable 4,500.00
Supplies 1,500.00
Equipment 25,000.00
Accounts Payable 12,500.00
Cruz, Capital 200,000.00
Cruz, Drawing 3,000.00
Repairs Revenue 17,000.00
Rent Expense 2,500.00
Salaries Expense 2,500.00
Utilities Expense 2,800.00
Total 229,500.00 229,500.00

CRUZ REPAIR SHOP

ACCOUNTS RECEIVABLE SCHEDULE
JUNE 30, 2012
Amounts in Philippine Peso

Stefano 2,500.00
Mateo 2,000.00
Total 4,500.00

CRUZ REPAIR SHOP

ACCOUNTS PAYABLE SCHEDULE
JUNE 30, 2012
Amounts in Philippine Peso

AVENSON 12,500.00