63

CASH BASIS
Problem 63-1 (AICPAAdaPted)
The following information pertains to Spee Company's sales

curent year:
Cash sales
Gross

Returns and allowances

Credit sales

Gross

Discounts
On January

I,

customers owed Spee

PI

,000,000' On December

Spee P750'000- Spee-uses direct writeoff med

foi bad debts. No bad debts were recorded in the current year'U*it ofa."ountins what amount ofsales revenue should
tt"
"ustfor the current Year?
report

"mi"..*'"*"a

l. s,000,000
b. 4,750,000
c. 4,250,000
d. 1,900,000
Solution

6i-1

Answer a

Accounts receivable - January

Add: Credit sales

1,000,0fl
3,000,0fl

4,000,o(tr

Total

Less: Accounts receivable -

December 31

Sales discounts

Collections

Cash sales - net (2,000,000

100,000)

7s0,000
150,000

900,ofl

3,100,0fl
1,900,0fl

5,000,00

Total $ales - cash basis

Under the cash basis, sales revenue includes cash sales

collections from customers.
1086

anr

Problem 63-2 (AICPAAdapted)

Zeta Company reported sales revenue ofP4,600,000 in its income
statement for the year ended December 3 l, 201 1 . Additional information
is as

follows:

receivable

Accounts
Allowance for uncollectible

ns to Spee Company's sales for the

Zeta wrote

2,000,000
100,000
3,000,000
150,000

pee P1,000,000. On December 31,

. Spee uses direct writeoff method
recorded in the current year. Under
amount ofsales revenue should Spee

12l3u20t0 t2l3uzall
1,000,000 1,300,000

accounts 60,000

offuncollectible accounts totaling P20,000 during 20 I I .

Under the cash basis ofaccounting, what amount should be reported

as sales revenue for 201 1?

a.
b.

c.

d.

4,900,000
4,350,000
4,300,000
4,280,000

Solution 63-2 Answer d

Accounts receivable - December 31,
Add: Sales

2011

2010

Total
Less: Accounts receivable - l2l3ll201l 1,300,000
20,000
Writeoff
Collections - cash basis sales revenue
1,000,000
3,000,000

:ember

3l

4,000,000
750,000
150,000

900,000

3,100p00
0,000)

1,900,000
s,000,000

revenue includes cash sales and

r086

110,000

1,000,000
4,600,000
5,600,000

4,280,000

Problem 63-3 (AICPAAdapted)

During 2011, Kew Company had P200,000 in cash sales and

P3,000,000 in credit sales. The accounts receivable balances were
P400,000 and P485,000 at December 31, 2010 and 2011,
respectively. If Kew desires to prepare a cash basis income
statement, what amount should be reported as sales for 2011?
a. 3,285,000
b. 3,200,000
c, 3,115,000
d. 2,915,000

1087

Solution 63-3 Answer c

Prob

Accounts receivablc - Deccnrbcr 31, 2010

Credit sales

400,000
3,000,000

Jacqu

Total
Less: Accounts receivable - December 31, 201I

3,400,000
485,000

Allou

Collections
Cash sirles

2,915,000
200,000

Total sales - cash basis

3,r 15,000

Accou
Cash r

Elaine Company experienced the following changes in selected

accounts for the current year:

Bad dr

AccruaI sales
Accounts receivable:
January I
December 3l
Advances from customers:

At the

Problem 63-4 (ACP)

January
December

Nct

ar

Durin

Sales

5,000,000
800,000
500,000

300,000
400,000

31

What total amount of cash was received from customers during

the
year?

accour

accour

Under

the cur

a.
b.

c.

d.

a. 5,400,000
b. s,300,000
c. 4,800,000
d.

Accol

2,7
2,2
3,5
3,3

Solutio

4,600,000

Accoun

Sales or

Solution 63-4 Answer a

Accrual sales
Accounts receivable - January I
Advances from customer - December 3l

5,000,000
800,000
400,000

Total
Less: Accounts receivable - December 3l
Advances from customers - January 1

Cash received from customers

6,200,000
500,000
300,000

800,000
5,400,000

1088

Total
Accoun
Accoun

Collecti
Cash sa

Total

sa

Problem 63-5

l,2010

400,000
3,000,000

rber 31, 2011

Jacqueline Company began the current year with the following:

3,400,000
485,000

Accounts receivable
Allowance for doubtful accounts
Nct accounts receivable

2;915,000
200,000

During the current year, the following events occurred:

l,l119oo

fl1"t)

following changes in selected

1,000,000
80,000
920,000

Accounts written off

Cash sales
Sales on account
Bad debt expense recognized

120,000
500,000
3,000,000
200,000

At the end of the current year, the entity showed

s,000,000
800,000
s00,000
300,000
400,000
reived from customers during the

a balance rn

accounts receivable ofP I ,680,000 before the allowance for doubtful

accounts.

Under the cash basis, what amount should be reported as sales for
the current year?

a.
b.

c.

d.

2,700,000
2,200,000
3,500,000
3,320,000

Solution 63-5 Answer a

Accounts receivable
Sales on account

January I

1,000,000
3,000,000

Total
5,000,000
800,000
400,000

rber 3 I

31
i

mber
anuary

6,200,000
500,000
300,000

Accounts receivable - December

Accounts written off
Collections of accounts receivable
Cash sales

Total sales
800,000

3l

- cash basis

120p00)

2,200,000
500,000
2,700,000

5,400,000

88

4,000,000
(1,680,000)

1089

Probtem 63-6 (IAA)

Royal Company provided
the fi:llowing data
for the curent year

Sales

Cost ofgoods sold

t0,000.q

Operating expenses

5,300.of,

3,800.m
Prepaid operating
expenses
Accounts payable

Inventory
Accounts receivable

December

3l

Januar-r

1,000,000

700.0D

r,350,000 l,2O0,o
r,)(r0,000 2,too.on
r,400,000 1,375.m

Under cash basis, what

amoufllI should be
reported as purchases
me current year?

fr

a. 5,550,000
b. 5,700,000

c.

5,850,000

d.5,150,000
Solution 63_6 Answer
a
Inventory Januarv I
Purchases under
acciual basis (SeUEEZE)
available for sale
_Goods
lnventory : December

2,t00.o
5.700.m

7,800-0

3l

Cost ofgoods sold

5,300.(D
Accounts payable _ Januarv
I
rurchases _ accrual
basis
Total

Accounts payable _
December 3l
Cash paid for purchases _
cash basis

1090

t,200.0
5,700-r
6,9@,o
I

5,550-o

Problem 63-7 (AICPAAdapted)

ng data for the current year:
10,000,000
5,300,000
3,800,000

December

31

January

1,000,000 700,000
i,350,000 1,200,000

2,500,000 2,100,000
1,400,000 r,375,000

rld be reported as purchases for

Under Harlett Company's accounting system, all insurance

premiums paid are debited to prepaid insurance. For interim
financial reports, Harlett makes monthly estimated chatges to
insurance expense with credits to prepaid insurance.
Prepaid insurance on January l, 2011
Charges to insurance expense during 201 I
(including a year-end adjustment ofP35,000)
Prepaid insurance on December 31,2011

210,000
875,000

245,000

What is the insurance premium paid during 201 1?

910,000
875,000
c. 840,000
d. 665,000

a.

b.

Solution 63-7 Answer a

Insurance expense
Prepaid insurance - December 31
Prepaid insurance - January 1

875,000
245,000

G]9,099)
910,000

Insurance premium paid

2,r00,000

)UEEZE)

s.700.000

Problem 63-8 (IAA)

7,800,000

During the current year, Seawall Company reported total operating

expenses of P3,200,000, consisting of P1,000,000 depreciation,

er00499
1,200,000
5,700,000

P700,000 insurance and P1,500,000 salaries. The prepaid insurance

is P I 50,000 on January I and P200,000 on December 3 1 . The accrued
salaries payable totaled P120,000 on January I and P100,000 on
December 3 1. What total amount was paid for operating expenses?

6,900,000

a.

5,300,000

cll9!gq)
sls

s,5s0,000

3,270,000

b. 2,270,000
c.
d.

2,130,000
2,230,000

1091

Solution 63-8 Answer b

Operating expenses per book
Depreciation
Prepaid insurance - December 3 I
Prepaid insurance - January I
Accrued salaries payable - December 3l
Accrued salaries payable - January I

3,200,000
(1,000,000)
200,000

(
(

1s0,000)
100,000)
120,000

Cash paid for operating expenses

2,270,000

Problem 63-9 (PHILCPAAdapted)

Data below were taken from the comparative trial balance of
Miramar Company. The books are kept on the accrual basis. The
gxperses included depreciation ofp200,000 and amortization of
P100,000.

201I
Accounts receivable
Interest receivable
Inventories
Prepaid insurance
Accounts payable
Accrued expenses
Net sales
Interest revenue
Cost ofgoods sold
Insurance expense
Other expenses

201 0

4,500,000

5,000,000

7,500,000

7,000,000
300,000

20,000 50,000
8,000,000 9,000,000
100,000 50,000
500,000

2s,000,000
150,000
15,000,000

1,000,000
2,000,000

What total amount was paid for expenses during the current year?

2,150,000
2,850,000
2,700,000
d. 3,1s0,000
a.

b.
c.

1092

Solution 63-9 Answer a

3,200,000
(1,000,000)
200,000

(
(

3l

1s0,000)

i00,000)
120,000

2,270,000

Insurance expense
Other expenses
Depreciation
Amortization
Prepaid insurance - 201 I
Prepaid insurance - 2010
Accrued expenses - 201 I
Accrued expenses - 2010

1,000,000
2,000,000

( 200,000)
( 100,000)
100,000
( s0,000)
( 500,000)
300,000

Cash paid for expenses

lmparative trial balance of

3pt on the accrual basis. The
200,000 and amortization of
2011
4,500,000
20,000
8,000,000
100,000

7,500,000
500,000
25,000,000

2010
5,000,000
50,000
9,000,000
50,000
7,000,000
300,000

150,000
15,000,000
1,000,000

2,000,000
s during the current year?

2,550,000

Problem 63-10 (PHILCpAAdapted)

Under the accrual basis, rental income of Hamtikan Company
for

the cunent year is P600,000. Additional information

regarding rental

income is as follows:

Unearned rental income, January I

Unearned. rental income, December

Accrued rental income, January I

Accrued rental income, December

50,000
75,000
30,000

40,000
What total amount of cash was received from rental in the
current
year?

585,000
5,000
c. 625,000
d. 655,000
a.

b.

61

Solution 63- l0 Answer b

Rental income - accrual basis
Unearned rental income Januarv I
Unearned rental income December 3l
Accrued rental income - Januarv I
Accrued rental income - December 3l
Rental received

cash basis

600,000

50,000)
75,000
30,000

(l9,0oo)
615,000

1093

Probtem 63_ll (AICPAAdapted)

On February

I of the cu

*itr*flrgt,frly*flffiipffi
;'{.,,.ffi f.;.",#.i,td"15j;i,r.:"i,,ffi lil,*m",-"*
a; 100,000
b. 300,000
c. 600,000
d. 700,000
Solution 63- I I Answer
c
Capital - Februarv I
Cash basis inconr for
February and March
Total
Withdrawals during
March

200,000
500,000
700,000

Capital-March3l

(100,000)

probtem 63-12

-qA{A

(pHILCpAAdapted)

*gms*ffi
a. 4,000.000
u. r,soo,ooo

-r<etmsonDecember:l,zoil:

c.4,150,000
d.4,r00,000
1094

b
Solution 63-12 Answer

d)

year,-Tory began a service

sh investment ofP200,000. The
00 of service in February and
h. The proprietorship incurred
rary which were paid in April.
000 against the capital account.
rl statements for the two months

r the cash basis

of accounting,

d as capital?

3,so0poo

Capital - JanuarY I
Cash basis net income

600,000
4,100,000

Total

Drawings

3,900,000

Capital - December 31

Problem 63-13 (IAA)

from the records of Katcelynne
The following data were taken

companY:

sales
Sales on account
Cash Purchases
Credit Purchases
Expenses Paid
Accounts receivable - J:"uu1l-,,
Jl
Accounts receivable-- December

Cash

nd March

200,000
500,000
700,000

q!q!00)
600,000

ted)

Accounts payable - J:nrut{ 1_

rr
Accounts payable - December ",
Inventory- January I
^.
lnventory - December Jl L^_rr
I
Accrued expenses -^December.rj
:r
Prepaid expenses - December
Equipment -.December Jl

I 31

chased the net assets of Alador

br P3,500,000, and commenced

y, a sole pr6prietorship. The assets
'50,000 and a market value of
rsh basis financial statements for
rted revenue in excess ofexpenses
during the current year totaled
ancial statements, what amount
.eims on December 31, 201 1?

lffi:::ff:iJffre-Januarv
ilffi;;ie - December

2,5oopoo
850,000

1,700P00
400;000
750,000
250,000
300,000
iiO,OOO

200,000
500,000
600,000
20,000
30,000
1,000,000
40,000

1o'ooo
2o'ooo

The
was acquiredfor P200'000'
On July l, 2011' an equipment
year'
to be paid after one
i"r., J*i'so,oriO down and isthel0balance
years with no residual value'
The useful life of equipment
cash basis?
What is the net income under

550,000
b. s70,000
c. 540,000
d. 640,000
a.

109s
94

200,000)

Solution 63-13 Answer a

Sales on account
Accounts receivable _ January
I
Accounts receivable _ December
3l
Collections from customers
Cash sales

Total sales

llqgga

Credit purchases
Accounts payable _ Januarv I
Accounts payable _ Decemier

400,000
1s0,000

3I

(_2p0,99Q)

Pa)rrnents of accounts payable

Cash purchases

3s0,000

r,700,000

cash basis

2,0s0,000

Depreciation on equipment
on J

o"o1^1'^"1

91

300.000)

800,000
2,500.000

- cash basis

Total purchases

850,000
250,000

.' Jq,i;;#;;#ilr"1,,fff ,,*,,,

80,000

(200,000/ t0x6/12)

10,000

Total depreciation

2qq99
Sales

3,300,000

Cost of sales:

Inventory _ Januarv I
Purch ases

500,000
2,050,000

Goods available for sale

Inventory - December 3l

2,550,000

Gross income
Expenses paid

1,950,000

(
(

Depreciation
Interest received

Net income

600,000)

1,350,000

750,000)

90,000)
40.000

cash basis

550,000

1096