Poyaoan, Rowena G.

Bsac-3

AUDIT 3
CHAPTER 24

Problem 1:
Required: Adjusting Entries

(1) Depreciation expense P3,200

Accumulated depreciation-delivery vehicle P3,200

(2) Cost of sales P19,000

Retained earnings P19,000

(3) Cost of sales P8,500

Inventory P8,500

(4) Cash P5,600

Accounts receivable P5,600

(5) Accumulated depreciation-equipment P22,000

Equipment P18,300
Gain on sale of equipment P 3,700

(6) Estimated litigation loss P125,000

Estimated litigation liability P125,000

(7) Unrealized holding gain or loss-income P2,000

Allowance for decline in value of securities P2,000

(8) Accrued Salaries payable P3,800

Salaries expense P3,800

(9) Depreciation Expense P4,000

Equipment P32,000
Repairs expense P32,000
Accumulated depreciation-equipment P4,000

(10)Insurance expense P5,000

Prepaid expense P7,500
Retained earnings P12,500

(11) No adjusting entry.

Problem 2:
Part 1

Adjusting Journal Entries

As of December 31, 20x8

(1) Depreciation expense P1,778

Accumulated Depreciation
[(22,000-2,000)-4,000]/9 P1,778
(2)Prepaid Interest P5,000
Retained earnings P3,100
Interest expense 1,900

(3)Merchandise Inventory, Dec, 31, 2008 P15,000

Cost of Sales P15,000

(4)Retained earnings P6,000

Purchases P6,000

(5)Prepaid Insurance P3,000

Insurance expense P3,000

(6)Store supplies Inventory P1,450

Store supplies expense P550
Retained earnings 900

(7)Retained earnings P730

Commission expense 240
Accrued commission payable P970

(8)Cash in bank P650

Miscellaneous Income P650

(9)Purchases P800
Accounts Payable P800

(10)Income from investment P3,000

Investment P3,000

(11)Prepaid advertising and promotions P90,000

Advertising and promotions expense P90,000

(12)No adjusting entry

(13)Machinery P20,000
Depreciation expense-machinery 167
(1,500/9yrs)
Allowance for depreciation-machinery P167
Repairs and maintenance 20,000

(14)Miscellaneous income P2,000

Gain on sale of treasury shares 5,000
Land P2,000
Additional paid-in capital arising
from treasury share transaction 5,000
(15)Doubtful accounts expense P14,500
Allowance for uncollectible Accounts P14,500

On past due accounts (5%x30,000) P1,500

On past current accounts (1%x400,000) 4,000
TOTAL P5,500
Unadjusted debit balance of the allowance account 9,000
Additional Provision P14,500

Part 2: Column B- Adjustment, December 31, 20X8

AJE (a) Retained Earnings xx

Purchases xx

(b) None

(c) Retained earnings xx

Allowance for depreciation xx

(d) Retained earnings xx

Allowance for depreciation xx

(e) Machinery xx
Retained earnings xx

(f) Depreciation xx
Allowance for depreciation xx

(g) Retained earnings xx

Taxes xx

Problem 3
Requirement 1: Adjusting Entries

AJE (a) Inventory, Dec 31, 20X7 P67,200

Cost of Sales P67,200

(b) Doubtful accounts expense P14,920

Allowance for doubtful accounts
(15,660-740) P14,920

(c) Accounts Payable P20,760

Purchase returns and allowances P20,760
(346,000x6%)

(d) Sales Commissions P216

Accrued commissions Payable P216

(e) Freight-in P1,600

Accounts Payable P1,600

(f) Advertising expense P1,212

Prepaid advertising P1,212
 (g) Freight -out P8,400
Sales P8,400

(h) Interest receivable P1,380

Interest income P1,380

(I) Depreciation expense P1,300

Accumulated depreciation P1,300

(j) Supplies expense P1,160

Unused supplies(4,360-3,200) P1,160

( k) Provision for income tax expense P107, 386

Income tax payable (335,582x32%) P107, 386

Requirement 2

Sunshine Cosmetics, Inc.

Income statement
For the year ended December 31,20X7

Revenue from sales:

Sales P998,800 (a)
Less: Sales returns and allowances P22,400
Sales discounts 1,760 24,160 P974,640

Cost of goods sold:

Inventory, January 1 P179,400
Net purchases:
Purchases P346,000
Less: Purchase ret. & allow. P20,760 (c) 325,240
Freight-in 12,650 (b)
Cost of goods available for sale P517,290
Less: Inventory, December 31 108,300(d) 408,990
Gross profit on sales P565,650

Other Income:
Interest revenue P2,780 (i)
Dividend revenue 14,300
Gain on sale of assets 37,000 P54,080
Total Income P619,730

Operating expenses:
Selling expenses:
Sales salaries and commissions P70,216 (e)
Advertising expense 33,392 (f)
Dep’n exp.-sales/ delivery equip’t 13,500 (g)
Freight expense 8,400
Travel expense 9,120
Miscellaneous selling expenses 4,400 P139,028

General and Administrative expenses:

Legal services P4,450
 Insurance and Licenses 17,000
Depreciation exp.-office equip’t 9,600
Utilities 12,800
Telephone and postage 2,950
Supplies expense 1,160 (k)
Officers’ salaries 73,200
Doubtful accounts expense 14,920 (h) P136,080
Total Operating expense (275,108)

Other expense and losses:

Interest expense P9,040
Loss on sale of equipment P45,200 (54,240)
Income from continuing operations before income taxes P290,382
Income Taxes 92,922 (j)
Income from continuing operations P197,460
Discontinued operations:
Gain from discontinued operations
(net of income taxes of P25,600) 54,400
Net Income P251,860

Earnings Per ordinary share:

Income from continuing operations(197,460/78k shares) P2.53
Gain from discontinued operations(54,400/78k shares) 0.70
Net Income(251,860/78k shares) P3.23

Computations:
(a) Sales: P990,400 + P8,400= P998,800
(b) Freight-in: P11,050 + P1,600= P12,650
(c) Purchase returns and allowances: P346,000 x 6%=P20,760
(d) Inventory: P41,100 + P67,200= P108,300
(e) Sales salaries and commissions: P70,000 + (P7,200 x 3%)=P70,216
(f) Advertising expense: P32,180 + (P3,636 x 2/6)= P33,392
(g) Depreciation expense: P12,200 + (P15,600 x 10/120)= P13,500
(h) Doubtful accounts expense: (P522,000 x 3%)- P740= P14,920
(i) Interest Revenue: P1,400 + P1,380= P2,780
(j) Income taxes: P335,582 x 32%= P107,387
(k) Supplies expense: P4,360 – P3,200= P1,160

Sunshine Cosmetics, Inc.

Retained Earnings Statement
For year ended, December 31, 20X7

Retained earnings, January 1 P 881,340

Add: Net income per income statement 251,860
P1,133,200
Deducted dividends paid (66,000)
Retained earnings, December 31 P1,067,200

Problem 4:

Required: Adjusting Entries, December 31, 20X8

AJE (1) Share donation P60,000

Treasury shares P35,000
 Land 10,000
Building 15,000

(2) Accumulated dep’n-machinery 1,000

Loss on sale of machinery 2,000
Machinery 3,000
Cost P5,000
Less: AD (20%)1,000
NBV 4,000
Proceeds 2,000
Loss 2,000

(3) (a)Accumulated depreciation-bldg. 300

Retained earnings 300

(b)Factory operating expense 21,300

Accumulated dep’n-building 6,300
Accumulated dep’n-machinery 15,000
Building (315,000 x 2%)= P6,300
Machinery: 5,000 x 10% = 500
145,500 x 10% = 14,500
P15,000

(4) Merchandise Inventory 175,000

Cost of Sales 175,000

(5) Administrative expenses 1,000

Allowance for doubtful accounts 1,000

(6) Factory operating expense 3,000

Unexpired insurance 3,000

(7) Retained earnings 2,500

Bond interest expense 2,500
Unamortized bond discount 5,000

(8) Sinking fund assets 23,500

First mortgage SF bonds 23,500

(9) Sinking fund assets 1,500

Sinking fund income 1,500

Required: Eight-column worksheet

Daffodil, Inc.
Working Trial Balance
December 31, 20X8

TRIAL ADJUSTMENT INCOME BALANCE

BALANCE S STATEMENT SHEET
Dr Cr Dr Cr Dr Cr Dr Cr
Cash P64,000 P64,00
0
Accounts Receivable 200,000 200,00
0
Provision for doubtful accounts P1,000 (5)P1,0 P2,000
00
Inventories, Dec. 31, 20X7 223,000 P223,0
00
Unexpired Insurance 6,000 (6)3,00 3,000
0
Land 220,000 (1)10,0 210,00
00 0
Buildings 330,000 (1)15,0 315,00
00 0
Accumulated depreciation – 6,600 (3a)300 (3b)6,30 12,600
bldg. 0
Machinery 148,000 (2)3,00 145,00
0 0
Accumulated depreciation- 15,000 (2)1,00 (3b)15,0 29,000
machinery 0 00
Sinking fund assets 25,000 (8)23,5
00
(9)1,50 50,000
0
Unamortized bond discount 25,000 (7)5,00 20,000
0
Treasury shares, ordinary 35,000 (1)35,0 -
00
Accounts payable 88,000 88,000
Bond interest accrued 3,750 3,750
1st mortgage, 6% SF bonds 226,500 (8)23,5 250,00
00 0
Ordinary shares 500,000 500,00
0
Premium on ordinary shares 50,000 50,000
Share donation 60,000 (1)60,0 -
00
Retained earnings 74,150 (7)2,50 (3a)300 71,950
0
Sales 875,000 P875,0
00
Purchase 283,500 283,50
0
Payroll 169,000 169,00
0
Factory operating expenses 121,500 (3b)21,
300
(6)3,00 145,80
0 0
Administrative expenses 35,000 (5)1,00 36,000
0
Bond interest expense 15,000 (7)2,50 17,500
0
P1,900, P1,900,0
000 00
Loss on sale of machinery (2)2,00 2,000
0
Merchandise inventory (4)175, (4)175, 175,00 175,00
000 000 0 0
Sinking Fund income (9)1,50 1,500
0
P293,6 P293,6 876,80 1,051,5 1,182,0 1,007,
 00 00 0 00 00 300
Net Income 174,70 174,70
0 0
P1,051 P1,051 P1,182 P1,182
,500 ,500 ,000 ,000

Problem 5.

Adjusting Journal Entries, December 31, 20X8

(1)Cash P200,000
Accounts Payable P200,000

(2)Accounts receivable 10,000

Cash 10,000

(3)Bank loan payable 400,000

Other expenses 12,500
Cash 412,500

(4)Cash 75,000
Accounts receivable 75,000

(5) Operating expenses 1,500

Cash 1,500

(6) Cash 16,000

Other income 16,000

(7)Accounts receivable-others 5,000

(2,000+3,000)
Operating expenses 2,000
Cash 7,000

(8)Marketable securities 40,000

Other income 40,000

(9) Other income 54,000

Marketable securities 54,000

(10) Marketable securities 32,000

Other income 32,000

(10.a) Valuation allowance-MS-Trading 145,600

Other income -UHG 145,600

(11) Sales 500,000

Accounts receivable 500,000

(12)Inventory 400,000
Cost of Sales 400,000

(13) Accounts receivable-others 15,000

(30,000-15,000)
Accounts receivable 15,000
(14) Accounts receivable-others 55,000
Accounts receivable 55,000

(15) Accounts receivable 50,000

Other current liabilities 50,000

(16) Operating expenses 21,900

Allowance for doubtful accounts 21,900

(17)Other income 54,545

Discount on notes receivable 54,545

(18) Discount on notes receivable 4,545

Other income 4,545

(19)Cost of sales 60,000

Accounts Payable 60,000

(20) Cost of sales 25,000

Accounts Payable 25,000

(21) Inventory 25,000

Cost of Sales 25,000

(22) Accounts receivable-others 16,000

Inventory 16,000

(23) Sales 13,000

Accounts Receivable 13,000

(24)Operating expenses 46,250

Prepaid expenses 46,250

(25)Operating expenses 5,000

Prepaid expenses 5,000

(26)Other assets 60,000

Operating expenses 120,000
Prepaid expenses 180,000

(27)Long-term bond investment 5,777

Other income 5,777

(28)Accounts receivable-others 5,333

Other income 5,333

(29)Land 1,062,500
Building 3,187,500
Land and Building 4,250,000

(30)Building 425,000
Land and Building 425,000

(31)Operating expenses 20,000

 Land and Building 20,000

(32) Operating expenses 27,500

Prepaid expenses 27,500
Land and Building 55,000

(33) Land and building 237,500

Operating expenses 115,578
Accu. Dep’n- building 121,922

(34)Prepaid expenses 10,000

Operating expenses 10,000
Equipment 20,000

(35)Operating expenses 55,400

Acc. Dep’n- equipment 55,400

(36)Accounts payable 50,000

Other current liabilities 50,000

(37)Operating expenses 15,000

Estimated liab. on warranties 15,000

(38)Other current liabilities 50,000

Other expenses 50,000

(39)Income taxes payable 115,290

Provision for income tax 115,290

Masipag Corporation
Balance Sheet
December 31, 20X8

ASSETS:
Current assets
Cash P734,000
Marketable securities P400,000
Valuation Allowance 145,000 545,600
Accounts Receivable P422,000
Allowance for doubtful accounts (33,150) 408,850
Notes receivable P600,000
Discount on notes receivable (50,000) 550,000
Accounts receivable-others 96,333
Inventory, Dec 31, 20X8 1,960,500
Prepaid expenses 175,250
Total current assets P4,470,533
Investments
Long term bond Investment 744,077
Property, Plant and Equipment
Land P1,062,500
Building P3,612,500
Accumulated depreciation-building (121,922) 3,490,578
Equipment P1,654,000
 Accumulated depreciation-equipment (235,400) 1,418,600
Total PPE 5,971,678
Other Assets 110,000
Total Assets P11,296,288

Liabilities and Shareholders’ Equity

Current liabilities
Accounts Payable P877,000
Bank loan payable 1,100,000
Accrued expenses payable 59,000
Other current liabilities 100,000
Income taxes payable 130,558
Estimated liability on warranties 70,000
Total Current Liabilities P2,336,558

Shareholders’ equity
Ordinary Shares P5,000,000
Additional paid-in capital 1,655,250
Retained Earnings 2,304,480
Total shareholders’ equity 8,959,730
Total liabilities and shareholders’ equity P11,296,288

MASIPAG CORPORATION
Income Statement
For the year ended December 31, 20X8

Sales P6,437,000
Cost of Sales (4,060,000)
Gross profit P2,377,000
Other Income 225,710
Operating expenses (1,511,509)
Other expenses (37,500)
Income before taxes P1,053,701
Provision for income tax (342,441)
Net Income P711,260