Chapter 11

CHAPTER 11
EXERCISES
1.
a)
b)
c)
d)
Bad Debts Expense

11,250
Allowance for Bad Debts
Financial position presentation:
Accounts Receivable
125,000
Less: Allowance for Bad Debts
17,250
Net Realization
107,750
Computation: 1% x 1,125,000
Allowance for Bad Debts, beginning
6,000
Add: Provision for bad debts
11,250
Total allowance for bad debts
17,250
Bad Debts Expense
5,417.50
Accounts Receivable
125,000.00
11,417.50
Net Realization
P113,582.50
Computation: 1/2% x (1,125,000 - 16,000 -25,500)
6,000.00
Add: provision for bad debts
5,417.50
P11,417.50
Bad Debts Expense
2,500
Accounts Receivable
125,000
8,500
Net Realization
116,500
Computation: 2% x 125,000 = 2,500
6,000
Add: provision for bad debts
2,500
8,500
Bad Debts Expense
250
Accounts Receivable
125,000
6,250
Net Realization
118,750
Computation: [5% x 125,000] required allowance
6,250
6,000
Provision for Bad Debts
250
11,250
5,417.50
2,500
250
2.
Amounts
P 60,000
150,000
70,000
50,000
20,000
Age of accounts
Within the discount period
1-30 days past due
31-60 days past due
61-90 days past due
Over 90 days
Estimated Percentage
Uncollectible
0
2
5
30
50
Bad Debts Expense

Accounts Receivable
Net Realization
Provision for
Bad Debts
3,000
3,500
15,000
10,000
31,500
31,500
350,000
51,500
298,500
3.
Bad Debts Expense
Accounts Receivable
Net Realization
4.
26,500
26,500
350,000
36,500
313,500
A. Popular Grocery
1. Building (8,800,000 1,250,000)/20 = 377,500 (yearly depreciation)
Depreciation Expense
377,500
Accumulated Depreciation Building
99
377,500
2.
3.
Furniture & Fixtures: (150,000 15,000)/10= 13,500

Accumulated Depreciation Furniture & Fixture
Office Equipment [(345,000-75,000)/8 x10/12=28,125
Accumulated Depreciation
13,500
13,500
28,125
28,125
B. Financial position Presentation:

Building
Less: Accumulated Depreciation (377,500 x 4)
Book Value
Furniture & Fixtures
Less: Accumulated Depreciation (13,500x 1.5 yrs)
Book Value
Office Equipment
Less: Accumulated Depreciation
Book Value
Income Statement Presentation:
Operating Expenses:
Depreciation Building
Depreciation Furniture & Fixtures
Depreciation Office Equipment
5.
Date
a)
b)
c)
d)
e)
6.
a)
b)
2011
12/31
Particulars
Adjusting Entries:
Accrued Interest Income
Interest Income
(8,000 x .14 x 19/360)
Interest Expense
Prepaid Interest
(250,000 x .18x 60/360 = 7,500x 15/60)
Lease Income
Unearned Rent
(600,000 x 14/15) + (520,000 x 1/6)
Insurance Expense
Prepaid Insurance
(6,000 x 12/18)
Merchandise Inventory
Income & Expense Summary
8,800,000
1,510,000
7,290,000
150,000
20,250
129,750
345,000
28,125
316,875
377,500
13,500
28,125
Debit
Credit
59.11
59.11
1,875
1,875
646,666.67
646,666.67
4,000
4,000
145,000
145,000
12/31/2011
Rent Expense
Accrued Rent Expense
12,000
12,000
Rent Expense
198,000
12,000

12/31
12,000
In the 2011 Income Statement, Rent Expense will be presented as 210,000, while in the 2011
Statement of Financial Position there will be an additional Accrued Rent Expense or Rent Payable
in the liability section in the amount of P12,000
c)
d)
e)
2012
1/5
f)
7.
b.
Jan. 1, 2012
Rent Expense
Jan. 5, 2012
Rent Expense
Cash
Rent Expense
2012
12,000 1/1 RE
12,000
12,000
12,000
12,000
12,000

2012
12,000
beg
2012
1/1 RE
12,000
Based on the T Account shown above, although rent was paid, this will not be presented in the 2012
Income Statement and no accrued rent will be presented in the 2012 Statement of Financial Position
because it has already been paid.
Adjusting Entries:
Bad Debts
(10% x 110 = 11 8 = 3)
Depreciation Expense Furniture & Fixtures
Accum. Depn. Furniture & Fixtures
100
3
3
10
10
(60-10)/5=10)
Interest Receivable
Interest Income
(80 x 15% x 6/12)
Interest Expense
Interest Payable (80 x 18% x 5/12)
6
6
6
6
Rent Expense
Prepaid Rent
Salaries & Wages Expense
Salaries Payable
Commission Income
Unearned Commission Income
Output Tax
Input Tax
VAT Payable
10
10
6
6
1
1
192
104
88
85
85
c)
Villar Trading
Income Statement
For the year ended Dec. 31, 2011
Net Sales (note 1)
Cost of Sales (note 2)
Gross Income
Other Operating Income (note 3)
Selling Expenses (note 4)
General Expenses (note 5)
Interest Expense
Net Income
Note 1
Note 2
Note 3
Note 4
Note 5
d)
P1,459
951
508
10
(139)
( 120)
(6)
P 253
Sales
P1,500
Sales Return & allowances
( 25)
Sales Discount
( 16)
Net Sales
P1,459
Merchandise Inventory, Jan. 1
P 198
Purchases
850
Freight In
15
Purchase Returns & Allowances
( 19)
Purchase Discount
( 8)
Merchandise Inventory, Dec. 31
( 85)
Cost of Sales
P 951
Commission Income
P 4
Interest Income
6
Other Operating Income
P10
Selling Expenses
Freight Out
P 19
Salaries & Wages (78 x 2/3)
52
Utilities (64 x )
48
Depreciation
10
Rent
10
Total
P139
General Expenses
Salaries & Wages (78 x 1/3)
P 26
Utilities (64 x )
16
Taxes
75
Bad Debts
3
Total
P 120
Villar Trading
Statement of Owners Equity
For the Year Ended December 31, 2011
Villar Capital, Beginning
P 100
Add: Income
253
Less: Drawings
(16)
Villar Capital, End
P 337
e)
Villar Trading
Statement of Financial Position
Assets
Current Assets
Cash on Hand
P 25
December 31, 2011

Liabilities & Owners Equity
Current Liabilities
Accounts Payable
P 16
101
Cash In Bank
Accounts Receivable
P 110
Allowance for Bad Debts ( 11)
Supplies Inventory
Prepaid Rent
Notes Receivable
Interest Receivable
Total
Non- Current Assets
P 60
Accumulated Deprn
( 20)
Total Assets
175
99
85
4
20
80
6
494
Salaries Payable
Interest Payable
VAT Payable
Total
Non-Current Liabilities
Loan Payable
Total Liabilities
Villar, Capital
40
P 534
Total Liabilities & Owners Equity
f)
1)
2)
3)
Closing Entries:
Sales
Interest Income
Commission Income
Purchase Discount
Merchandise Inventory, Jan. 1
Purchases
Freight In
Freight Out
Salaries & Wages
Utilities Expense
Bad Debts
Depreciation
Rent
Taxes
Sales Returns & Allowances
Sales Discount
Interest Expense
Villar, Capital
CE
4)

1,369 AE
CE
Villar, Capital
Villar, Drawings
1,500
6
4
19
8
1,537
1369
198
850
15
19
78
64
3
10
10
75
25
16
6
1,183
1,183
85
1,537
253
16
16
g)
Reversing Entries:
Salaries Payable
Salaries and Expense
Interest Income
Interest Receivable
Interest Payable
Interest Expense
Commission Income
h)
6
6
6
6
6
6
1
1
Profitability
1. Gross Profit Ratio 508/1,459 = 35%
2. Operating Ratio 259/1,459 = 18%
3. Return on Sales = 253/1,459 = 17%
PROFITABLE
Liquidity
1. Working Capital 494 117 = 377
2. Current Ratio 494/117 = 4.22 :1
3. Acid Test Ratio = 299/117 = 2.56:1
VERY LIQUID
Solvency
1. Debt Ratio
197/534 = 37%
102
6
1
6
88
117
80
197
337
P 534
2. Equity Ratio 337/534 = 63%

3. Times Interest Earned 259/6 = 43.17 times
VERY SOLVENT
7. a)
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)
m)
n)
o)
Land
Cash
Carmelo, Capital
Resort
Cash
Cash
Mortgage Payable
Resort Improvements
Cash
Equipment
Cash
Notes Payable
Furnitures & Fixtures
Cash
Linen
Cash
Supplies
Accounts Payable
Vending Purchases
Cash
Cash
Credit Card Receivable
Room Sales Revenue
Cash
Vending Sales Revenue
Wages
W/Tax Payable
SS Premium Payable
Pag-ibig Premium Payable
PH Premium Payable
Cash
Accounts Payable
Cash
Insurance Expense
Cash
Mortgage Payable
Interest Expense
Cash
300,000
250,000
Cash
250,000
300,000
84,303
8,800
a)
Land
300,000
550,000
108,000
108,000
300,000
300,000
285,400
285,400
48,000
12,000
36,000
120,000
120,000
7,894
7,894
4,200
4,200
540
540
84,303
4,437
88,740
8,800
8,800
31,200
1,560
936
624
312
27,768
3,200
3,200
4,200
4,200
15,000
2,000
17,000
b)
a)
c)
j)
k)
b) 108,000
d) 285,400
e)
12,000
f) 120,000
g)
7,894
i)
540
l) 27,768
m)
3,200
n)
4,200
o) 17,000
g)
Linen Purchases
7,894
a)
Land
300,000
i)
Vending Purchases
5,400
b)
Resort
108,000
Credit Card Receivables

j)
4,437
d)
Resort Improvements
285,400
103
h)
Supplies
4,200
Accounts Payable
m)
3,200 h)
Notes Payable
e)
e)
4,200

f) 120,000
36,000
n)
Mortgage Payable
o)
15,000 c) 300,000
l)
Carmelo Capital
a)
Prepaid Insurance
4,200
Wages
31,200
SS Premium Payable
l)
935
550,000
Vending Sales Revenue

k)
8,800
Room Sales Revenue
j)
88,740
Equipments
48,000
W/Tax Payable
l)
1,560
Pag-ibig Premium Payable

l)
624
PhilHealth Premium Payable
l)
312
o)
Interest Expense
2,000
104
c)
Accounts
Cash
Linen Purchases
Vending Purchases
Credit Card Receivable
Supplies
Land
Building
Equipment
Furnishings
Prepaid Insurance
Notes Payable
Mortgage Payable
Accounts Payable
Withholding Tax
Payable
SS & EC Payable
Philhealth Payable
Pag-ibig Payable
Carmelo, Capital
Vending Sales
Room Sales
Wages
Interest Expense
Linen Inventory
Vending Inventory
Wages Payable
Insurance Expense
Interest Payable
Depreciation
Equipment
Accumulated
Depreciation
Equipment
Depreciation
Furniture
Accumulated
Depreciation
Furniture
Depreciation
Building
Accumulated
Depreciation
Building
Supplies Expense
Totals
Trial Balance
Debit
Credit
57,101
7,894
540
4,437
4,200
300,000
393,400
48,000
120,000
4,200
36,000
285,000
1,000
1,560
Adjustments
Debit
Credit
Income Statement
Debit
Credit
7,894
540
8)
530
3)
350
4,437
3,670
300,000
393,400
48,000
120,000
3,850
36,000
285,000
1,000
1,560
936
624
312
550,000
8,800
88,740
31,200
2,000
972,972
_______
972,972
Financial Position
Debit
Credit
57,101
936
624
312
550,000
8,800
88,740
2)
4)
4,160
360
35,360
2,360
1) 1,200
1) 7,220
2)
3)
350
5)
375
4,160
360
360
375
1,177
375
1,177
6)
1,177
1,464
1,177
1,464
7)
8)
4,160
375
5)
7)
1,200
7,220
350
4)
6)
1)
1)
530
8,4
19
Net Income
105
1,464
8,41
9
1,464
530
50,050
105,960
55,910
105,960
105,960
938,878
55,910
938,878
8.
Credo's Auto Supply

Worksheet
Account Title
Cash On Hand
Cash In Bank
Accounts Receivable
Supplies
Merch. Invty.
Prepaid Interest
Store Equipment
Accounts Payable
Loans Payable
Credo, Capital
Credo, Personal
Output Tax
Sales
Sales Discount
Purchases
Input Tax
Purchase Discounts
Freight In
Freight Out
Salaries-Office
Salaries-Sales
Utilities Expense
Rent Expense
Trial Balance
Debit
Credit
Adjustments
Debit
Credit
48
375
64
3
165
6
144
50
Adjusted Trial Balance

Debit
Credit
2)
5)
48
375
64
1
165
5
144
50
8
100
470
165
1)
Balance Sheet
Debit
Credit
48
375
64
1
1) 237
5
144
50
237
8
100
470
26
8
100
470
26
107
897
26
8) 107
897
16
310
68
16
310
897
16
310
8) 68
4
1
13
17
82
90
108
1,586
Income Statement
Debit
Credit
7)
_____
1,586
Supplies Expense
Dep.Exp.-Store Equip.
Acc.Dep-Store Equip.
DepnExp.-Office Furn.
Acc.Depn.-Office Furn.
Interest Expense
Prepaid Rent
Salaries Payable
Utilities Payable
Taxes Payable
6)
36
2) 2
3) 10
1
13
17
82
94
72
1
13
17
82
94
72
2
10
2
10
3) 10
4) 10
10
10
4) 10
5) 1
6) 36
170
10
1
36
7) 4
8) 39
170
36
4
1,610
1,610
Cash On Hand
Cash In Bank
Accounts Receivable
Supplies Inventory
Prepaid Interest
Prepaid Rent
Store Equipment
Accumulated Depreciation - Store Equipment
Accumulated Depreciation - Furniture & Fixtures
Accounts Payable
Loans Payable
Taxes Payable
Utilities Payable
Credo, Capital
Credo's Auto Supply
Income Statement
For the year ended December 31, 2011
Net Sales (note 1)
Cost of sales (note 2)
Gross Profit
Selling Expenses
General Expenses
Operating Income
Interest Expense
Net Income
Gross Sales
Less Sales Discount
Net Sales
Note 2: Cost of Sales
Purchases
Freight In
Discount
Total Goods Available
10
1
Credo's Auto Supply

Post Closing Trial Balance
December 31, 2011
Note 1:
10
10
4
39
793
345
1,138
1,138
1,138
Debit
48
375
64
1
237
5
36
144
50
960
881.00
235.00
646.00
(230.50)
(69.50)
346.00
1.00
P345.00
897
16
881
165
310
1
(4)
472
106
986
Credit
10
10
8
100
39
4
789
960
345
986
Less Merchandise Inventory
237
Note 3:Rent Expense Store

Utilities Expense Store
Sales Salaries
Supplies Expense Store
Depreciation Expense - Store Equipment
Freight Out
54.0
70.5
82.0
1.0
10.0
13.0
230.5
18.0
23.5
1.0
17.0
10.0
P69.5
Note 4:Rent Expense Office

Utilities Office
Supplies Office
Salaries - Office
Depreciation Office
Credo's Auto Supply

Capital Statement
Credo, Capital Jan. 1
Net Income
Credo, Drawings
Credo, Capital, Dec. 31
P470
345
(26)
P789
a) Net Income/Net Sales (345/881)x100 =

Net Income/Capital (345/629.5) x 100 =
Operating Income/Net Sales (346/881)x100 =
Net Sales/Ave. Total Assets (881/907.50)x100 =
Very Profitable
39.16%
54.81%
39.27%
.97 times
b) Current Ratio 766/151 =

Acid Test Ratio 487/151 =
Very Liquid
5.073:1
3.225:1
c) Debt Ratio (151/960) x 100 =

Equity Ratio (789/960) x 100
=
Very solvent
15.73%
82.19%
d) Receivable TO (881/64) =
Average Age (360/13.77) =
Inventory TO (235/201) =
Average Age (360/1.17) =
Efficient in collection
Poor Inventory Management
13.77x
26 days
1.17
308 days
PROBLEMS
1.
Case 1
Case 2
Case 3
Case 1
Case 2
Case 3
Accounts & Explanation

Bad Debts Expense
(1,250,000 x .8 = 1,000,000 - 39,000)5%
Bad Debts Expense
(150,000 x 5%)
Bad Debts Expense
(7,500 - 1,550)
Financial Position Presentation:
Accounts Receivable
Net Realizable Value
Operating Expense - Bad Debts
Accounts Receivable
Accounts Receivable
2. a)
107
Debit
48,050
Credit
48,050
7,500
7,500
5,950
5,950
P150,000
49,600
100,400
48,050
P150,000
9,050
P140,950
7,500
P150,000
7,500
P142,500
5,950
Accounts & Explanation

Accounts Receivable
Debit
20,000
Bad Debts Expense

46,500
P750,000
200,000
220,000
60,000
10,000
b)
2.
Not yet due

1-30 days past due
31-60 days past due
61-90 days past due
Over 90 days
Credit
20,000
46,500
1
2
5
30
60
7,500
4,000
11,000
18,000
6,000
46,500

Accounts Receivable (1,260,000 20,000)
Less: Allowance for Bad Debts (45,000 + 46,500)
P 1,240,000
91,500
1,148,500
a. Equipment (450,000-75,000) /6 = 62,500 x (3/12) = P15,625 for 3 mos.

Furniture & Fixtures (125,000/10) = 12,500/2 = P6,250 for 6 mos.
Car (350,000 - 150,000) /5 = 40,000 x (2/12) = P6,667 for 2 mos
Depreciation Expense - Equipment
Depreciation Expense - Furniture & Fixtures
Depreciation Expense Car
Accumulated Depreciation -Equipment
Accumulated Depreciation - Fur. & Fix.
Accumulated Depreciation - Car
Income Statement
Balance Sheet
Equipment
Less Accumulated Depreciation
Car
b)
4.
P 15,625
6,250
6,667
P 15,625
6,250
6,667
28,542
450,000
15,625
125,000
6,250
350,000
6,667
Depreciation Expense - Equipment

Depreciation Expense - Furniture & Fixtures
Depreciation Expense - Car
Accumulated Depreciation - Equipment
Accumulated Depreciation - Furn. & Fix.
Accumulated Depreciation - Car
Income Statement
Balance Sheet
Equipment
Car
a)
Accrued Interest
182.50
118,750
343,333
31,250
6,250
20,000
31,250
6,250
20,000
57,500
450,000
46,875
125,000
12,500
350,000
26,667
Accrued Interest
Interest Income
b)
434,375
403,125
112,500
323,333
838,958
182.50
182.50
Interest Income
550.00
182.50
732.50
Interest income should be P732.50 in the income statement.

Increase in the current asset by P182.50 for Accrued Interest.
c)
d)
Interest Income
Accrued Interest
182.50
182.50
Cash
Notes Receivable
Interest Income
37,047.50
36,500.00
547.50
108
Interest Income
1/1 RE
182.50 1/20
547.50
1/1 beg.
f) Interest income will be P365 in the 2010 Income Statement.
No accrued interest in the financial position statement.
5. A. 1)
2011
Aug. 1
Oct. 31
2)
3)
8/1
Prepaid Insurance
Cash In Bank
Advertising Expense
Cash In Bank
2)
9,000
18,000
Dec. 31 Prepaid Advertising

Advertising Expense
Insurance Expense
Prepaid Insurance
Prepaid Insurance
9,000
12/31
7,125
12,000
12,000
1,875
1,875
1,875
Advertising Expense
18,000 12/31
6,000
10/31
6.
1)
2)
3)
4)
5)
6)
7)
12,000
Insurance Expense
1,875
12/31
1,875
6,000
Financial Position Statement

Prepaid Insurance
Prepaid Advertising
Jan. 1 None for Prepaid Insurance
Advertising Expense
Prepaid Advertising
Dec. 31 Insurance Expense
Prepaid Insurance
Prepaid Insurance
7,125 12/31
2,625
1/1
4,500
7,125
12,000
12,000
12,000
4,500
4,500
Insurance Expense
4,500
12/31
Bad Debts
Supplies Expense
Supplies
Interest Expense
Prepaid Interest
Prepaid Rent
Rent Expense
Depreciation
Accumulated Depreciation
Salaries Expense
Salaries Payable
Utilities Expense
Utilities Payable
500
500
1,400
1,400
100
100
4,267
4,267
1,000
1,000
450
450
2,520
2,520
7. Gross Profit = P21,580

Operating Income (Loss) = (P9,403)
Net Income (Loss) = (P9,503)
The company is not profitable as it incurred a net loss of 9,503.
8.
Kenneth Toyland
8-Column Worksheet
For the year ended June 30, 2009
Account Title
Cash In Hand
Cash On Bank
Accounts Receivable
Allowance for DA
Notes Receivable
Merch. Invty., 7/1
Prep. Store Ins.
Store Furn. & Fixtures
Accum. Depn.
182.50
18,000
Income Statement
Insurance Expense
Advertising Expense
B. 1)
RE
9,000
Prepaid Advertising
12,000
12/31
Accrued Interest
182.50 1/1
Trial Balance
Debit
Credit
75200
487288
112000
4000
4800
89500
6300
16000
500
Adjustments
Debit
Credit
109
a)
1600
c)
3150
d)
2100
Income Statement
Debit
Credit
89500
Balance Sheet
Debit
Credit
75200
487288
112000
5600
4800
3150
16000
2600
Office Furn. & Fix.

Accum. Depn.
Accounts Payable
Notes Payable
Unearned Commission
Withholding Tax Payable
SS & EC Payable
Philhealth Payable
Pag-ibig Payable
Alfonso, Capital
Alfonso, Personal
Sales
Sales Ret. & Allowances
Sales Discount
Purchases
Freight In
Purch. Ret. & Allow.
Purchase Discount
Advertising Expense
Salary Expense
Sales
Salary Expense
Office
Rent Expense
Utilities Expense
Taxes Expense
Interest Expense
SS & EC Expense
Philhealth Expense
Pag-ibig Expense
Interest Income
Totals
Adjustments:
Bad Debts
Interest Receivable
Insurance Expense
Depn. Store Furn. & Fix.
Depn.-Off.Furn. & Fix.
Accrued Salaries
Prepaid Advertising
Interest Payable
Commission Income
Merch. Invty. End
Income & Exp. Sum.
Taxes Payable
Totals
Net Income
TOTALS
15000
30000
5020
2880
242000
6000
9000
60000
900
54000
180000
2400
490
522
100
200
521900
e)
h)
15000
3,000
800
583200
5020
2880
242000
6000
3000
2000
e)
550
f)
300
8700
60550
33400
33400
96800
42400
12000
600
6424
1200
2400
96800
42400
13437
2400
6424
1200
2400
1354900
j)
g)
1437
1800
3000
1354900
b)
a)
b)
c)
d)
e)
1600
20
3150
2100
3000
f)
300
i) 67125
81882
20
30000
583200
3000
2000
3020
1600
e)
550
g)
h)
1800
800
i) 67125
j) 1437
80445
20
3150
2100
3000
300
800
550
1800
67125
67125
622961
36184
659145
3900
54000
180000
1600
490
522
100
200
521900
659145
810883
659145
810883
1437
774699
36184
810883
Kenneth Toyland
Post Closing Trial Balance
June 30, 2009
Cash On Hand
Cash In Bank
Accounts Receivable
Notes Receivable
Prepaid Insurance
Store Furniture & Fixtures
Accumulated Depreciation - Store Furniture & Fix.
Office Furniture & Fixtures
Accumulated Depreciation Office Furniture & Fix.
Interest Receivable
Prepaid Advertising
Accounts Payable
Notes Payable
Salaries Payable
Interest Payable
Unearned Commission
W/Tax Payable
SS & EC Payable
PH Payable
Pag-ibig Payable
Alfonso, Capital
Closing Entries:
Purchases
Merchandise Inventory, June 1
Rent Expense
Taxes
Salary Expense - Office
Salary Expense - Sales
Depreciation Expense - Store Furniture & Fixtures
Depreciation Expense - Office Furniture & Fixtures
Freight In
Advertising Expense
110
Debit
75,200
487,288
112,000
Credit
5,600
4,800
67,125
3,150
16,000
2,600
15,000
3,900
20
300
______
780,883
54,000
180,000
550
1,800
1,600
490
522
100
200
528,084
780,883
622,961
242,000
89,500
96,800
13,437
33,400
60,550
3,000
2,100
6,000
8,700
Sales Returns & Allowances

Doubtful Accounts Expense
Sales Discount
Insurance Expense - Sales
Utilities Expense
Interest Expense
SS & EC
Pag-ibig
PhilHealth
Sales
Merchandise Inventory, June 30
Purchase Discount
Interest Income
Commission Income
Alfonso, Capital
Alfonso, Capital
Alfonso, Personal
Reversing Entries:
Advertising Expense
Prepaid Advertising
Interest Payable
Interest Expense
Interest Income
Interest Receivable
Taxes Payable
Taxes Expense
5,020
1,600
2,880
3,150
42,400
2,400
6,424
2,400
1,200
583,200
67,125
3,000
2,000
3,020
800
659,145
36,184
30,000
36,184
30,000
300
300
1,800
1,800
20
20
1,437
1,437
CASE STUDY
1. a) Yes, the business is a losing venture with a net loss of P72,000.
b) There was no adjustment yet on merchandise inventory count at year end.
c) Sales returns and allowances is quite alarming at 33,750 which means that there are a lot of defective
items produced by the company.
2.
Profitability
Gross Profit Ratio 317,200/641,250 = 49%
Operating Ratio 77,400/641,250 = 12%
Rate of Return on Sales = 78,000/641,250 = 12%
The business is profitable
Net Sales (note 1)
Cost of sales (note 2)
Gross Profit
Selling Expenses
General Expenses
Operating Income
Interest Income
Net Income
Note 1:
641,250
324,050
317,200
(134,400)
(105,400)
77,400
600
P 78,000
Sales
Less Sales Discount
Net Sales
675,000
33,750
641,250
Note 2: Cost of Sales

Purchases
Purchase Returns and Allowances
Freight In
Total Goods Available
Less Merchandise Inventory
171,250
300,500
(2,400)
4,700
474,050
150,000
324,050
111

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Bad Debts Expense

Bad Debts Expense

Furniture & Fixtures: (150,000 15,000)/10= 13,500

B. Financial position Presentation:

Accrued Rent Expense

Accrued Rent Expense

December 31, 2011

Total Liabilities & Owners Equity

Income & Expense Summary

2. Equity Ratio 337/534 = 63%

Credit Card Receivables

Furniture & Fixtures

Vending Sales Revenue

Pag-ibig Premium Payable

Credo's Auto Supply

Adjusted Trial Balance

Credo's Auto Supply

Less Merchandise Inventory

Note 3:Rent Expense Store

Note 4:Rent Expense Office

Credo's Auto Supply

a) Net Income/Net Sales (345/881)x100 =

b) Current Ratio 766/151 =

c) Debt Ratio (151/960) x 100 =

Accounts & Explanation

Accounts & Explanation

Bad Debts Expense

Not yet due

Financial Position Presentation:

a. Equipment (450,000-75,000) /6 = 62,500 x (3/12) = P15,625 for 3 mos.

Depreciation Expense - Equipment

Interest income should be P732.50 in the income statement.

Dec. 31 Prepaid Advertising

Financial Position Statement

7. Gross Profit = P21,580

Office Furn. & Fix.

Sales Returns & Allowances

Note 2: Cost of Sales

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