Sample Problem: Merchandising

Entity A started operations on November 1, 20x1. The following were the transactions
during the period:

Nov. Transactions
1 Provided ₱100,000 cash as initial investment to the business.
1 Acquired equipment for ₱72,000 cash. The equipment has a useful life of 4
years. Entity A records depreciation expense only at year-end.
1 Paid a one-year insurance premium of ₱24,000. (Use ‘asset method’)
12 Purchased inventory costing ₱30,000 for cash. (Use periodic inventory system)
14 Sold goods for ₱30,000 cash.

Dec. Transactions
1 Sold goods with sale price of ₱24,000 in exchange for a ₱24,000, 10%, one-
year note receivable. Principal and interest are due at maturity.
5 Purchased inventory for ₱4,000 on account.
26 Sold goods for ₱34,000 on account.
27 Paid ₱2,000 account payable.
29 Collected ₱20,000 account receivable.

Additional information:
 There is no beginning inventory. The ending inventory per physical count is ₱21,000.
 Entity A determines at year-end that accounts receivable of ₱2,000 is doubtful of
collection.
 Salaries earned by employees during the period but were not yet paid amounted to
₱20,000.

Requirements:
a. Provide the journal entries for the transactions.
b. Post the entries to the ledger using T-accounts.
c. Prepare the unadjusted trial balance using a worksheet.
d. Prepare the adjusting entries.
e. Complete the worksheet.
f. Prepare the closing entries.
g. Prepare the balance sheet and income statement.
h. Prepare the reversing entries to be recorded in the next accounting period.