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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 about the trends and recent developments in the


5.
Interested
in information
enables
them
determine whether their loans
prosperity
of the
enterprise that
and the
range
of itstoactivities.
and
related
interest
will
be
paid
when
due.
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
Effe
Jun 2 Cruz opened a repair shop business by investing cash of P200,000.
3 Paid P2,500 for monthly rent.
4 Purchased equipment on account from AVENSON, P25,000.
7 Rendered repair services for cash, P7,000.
10 Purchased repair supplies on account from Aze Hardware, P2,000.
12 Returned defective supplies, P500.
Hired an assistant for a monthly salary of P5,000. The assistant will
13 start reporting for duty on June 15,2012.
Rendered repair services on account: Bartolome - P3,000; Stefano 15 P5,000; and Mateo, P2,000.
Paid in full the account with Aze Hardware and paid P12,500 of the
18 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.

+ Asset

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
ASSETS
101 Cash
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
REVENUE
401 Repairs Revenue
EXPENSES
501 Rent Expense
502 Salaries Expense
503 Supplies Expense
504 Utilities Expense
505 Bad Debts Expense
506 Depreciation Expense

Real Accounts - Permanent Account


Nominal Accounts - Revenues, Expenses, Drawing
Increase Decrease Nominal
(+)
(-)
or Real?
Dr

Cr

Real

Dr
CR
Dr
Dr
CR

Cr
DR
Cr
Cr
Dr

Real
Real
Real
Real
Real

CR
cr

DR
DR

Real
Real

Cr
Dr

Dr
Cr

Real
Nominal
Nominal

Cr

Dr

Nominal

Dr

Cr

Nominal
Nominal
Nominal
Nominal
Nominal
Nominal

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.

Equipment
Accumulated Depc'n
Carrying value

BEFORE
250,000
0
250,000

Depreciation Expense

Adjusting Journal Entry:

ADJUSTMENT

AFTER

Dr

Cr

2. Bad Debts
The company estimates that 2% of accounts receivable will prove to be uncollectible.

Accounts Receivable
Allowance for Bad Debts

Net Realizable Value

BEFORE
300,000
4,500
295,500

ADJUSTMENT

AFTER

Bad Debts Expense

Dr

Adjusting Journal Entry:

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
29,700
Utilities Expense
Dr

Adjusting Journal Entry:

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.

Rent Receivable
Rent Income

BEFORE
0
27,500

ADJUSTMENT

AFTER

Dr

Adjusting Journal Entry:

Cr

5. Prepaid Expenses
***Prepaid Expenses are expenses already paid but not yet incurred.

asset method

The company paid a 1-year insurance of P12,000 on May 1, 2011.

Prepaid Insurance
Insurance Expense

BEFORE
12,000
0

ADJUSTMENT

AFTER

asset method

Dr

Adjusting Journal Entry:

Cr

expense method

What if?
Prepaid Insurance
Insurance Expense

BEFORE
0
12,000

ADJUSTMENT

Dr

Adjusting Journal Entry:

AFTER

Cr

6. Unearned Revenues
***Unearned revenues are revenues already received but not yet earned.

liability method

The company received advance rental payment for 6 months of P36,000 on September 1, 2011.
Unearned Rent Income
Rent Income

BEFORE
36,000
0

ADJUSTMENT

Dr

Adjusting Journal Entry:

AFTER

Cr

revenue method

What if?
Unearned Rent Income
Rent Income

Adjusting Journal Entry:

BEFORE
0
36,000

ADJUSTMENT

Dr

AFTER

Cr

7. Accrued Interest on Notes Receivable


The company received a 90-day, 10%, P100,000 promissory note dated November
25, 2011.

8. Accrued Interest on Notes Payable


The company issued a 120-day, 12%, P300,000 note to a bank in exchange for
a loan on September 22, 2011.

ability of employers
of the enterprise to
opportunities.

nterprise especially
dependent on, the
should buy, hold or

the activities of the


he activities of the
for national income

velopments in the
whether their loans

nts in the prosperity

D IN THE

e. The invoice was


business.

h was immediately
e is 5 years.

Upon order, the raw

or her business. She


when she closes the
s.

om Europe. It was
os. All other assets

NTING ELEMENTS OF
Effects
Dr
Cash

+ Capital

Cr
Cruz , Capital

A, L, C or E
enses, Drawing
SFP
or SI
SFP

SFP
SFP
SFP
SFP
SFP

SFP
SFP

SFP
STATEMENT OF CHANGES IN EQUITY

SI

SI
SI
SI
SI
SI
SI

AFTER

AFTER

AFTER

AFTER

d November

General Journal
Date
Jun 2 Cash

Particulars

f
101
301

Dr
200,000.00

501
101

2,500.00

105
/201

25,000.00

101
401

7,000.00

10 Supplies
Accounts Payable - Aze Hardware
To record purchase of supplies.

104
/201

2,000.00

12 Accounts Payable - Aze Hardware


Supplies
To record return of defective supplies.

/201
104

500.00

15 Accounts Receivable - Bartolome


Accounts Receivable - Stefano
Accounts Receivable - Mateo
Repairs Revenue
To record services rendered on account.

/102
/102
/102
401

3,000.00
5,000.00
2,000.00

18 Accounts Payable - Aze Hardware


Cash
To record payment of account.

/201
101

1,500.00

/201
101

12,500.00

Cruz, Capital
To record initial investment.
3 Rent Expense
Cash
To record payment for monthly rent.
4 Equipment
Accounts Payable - Avenson
To record purchase of equipment.
7 Cash
Repairs Revenue
To record services rendered for cash.

Accounts Payable - Avenson


Cash
To record partial payment of account.

General Journal
Date
Jun 22 Cash

Particulars

f
101
/102

Dr
3,000.00

101
/102

2,500.00

28 Cruz, Drawing
302
Cash
101
To record owner's withdrawal for personal use.

3,000.00

30 Utilities Expense
Cash
To record payment of MERALCO bill.

504
101

2,800.00

502
101

2,500.00

Accounts Receivable - Bartolome


To record collection of customer's account.
Cash
Accounts Receivable - Stefano
To record collection of customer's account.

Salaries Expense
Cash
To record payment of employee's salaries.

General Journal
Date

Particulars

Dr

Page 1
Cr
200,000.00

2,500.00

25,000.00

7,000.00

2,000.00

500.00

compound journal entry

10,000.00

simple journal entry


1,500.00
13-Jun memorandum entry
12,500.00

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
Jun 2 Investment
7 Services rendered
22 Collection of account
Collection of account

f
GJ1

GJ2

Dr
200,000
7,000
3,000
2,500.00

Date
Particulars
Jun 3 June rent
18 Supplies
Partial payment for equipment

28 Withdrawal
30 Meralco bill
Salaries

212,500
187,700

ACCOUNTS RECEIVABLE
Date
Jun 15

Particulars
Bartolome
Stefano
Mateo

f
GJ1

Dr
Date
3,000 Jun 22
5,000
2,000
10,000
4,500

Particulars
Bartolome
Stefano

ALLOWANCE FOR BAD DEBTS


Date

Particulars

Dr

Date

Particulars

Dr
Date
2,000 Jun 12
1,500

Particulars
Returns

SUPPLIES
Date
Jun 10

Particulars
Purchase

f
GJ1

EQUIPMENT
Date
Jun 4

Particulars
Acquisition

f
GJ1

Dr
25,000

Date

Particulars

ACCUMULATED DEPRECIATION
Date

Particulars

Dr

Date

Particulars

ACCOUNTS PAYABLE
Date

Particulars

Jun 12 Return of supplies

Dr

GJ1

18 Full payment

Date

500.00

Jun 4 Purchase of equipment

1,500

Partial payment

Particulars

10 Purchase of supplies

12,500
14,500.00

UTILITIES PAYABLE
Date

Particulars

Dr

Date

Particulars

Date

Particulars

CRUZ, CAPITAL
Date

Particulars

Dr

Jun 2

Investment

CRUZ, DRAWING
Date
Jun 28

Particulars
Withdrawals

f
GJ2

Dr
3,000

Date

INCOME AND EXPENSE SUMMARY

Particulars

Date

Particulars

Dr

Date

Particulars

REPAIRS REVENUE
Date

Particulars

Dr

Date
Particulars
Jun 7 Services for cash
15 Services on account

RENT EXPENSE
Date
Jun 3

Particulars
June rent

f
GJ1

Dr
2,500

Date

Particulars

SALARIES EXPENSE
Date
Jun 30

Particulars
Salaries for June

f
GJ2

Dr
2,500

Date

Particulars

SUPPLIES EXPENSE
Date

Particulars

Dr

Date

Particulars

UTILITIES EXPENSE
Date
Jun 30

Particulars
Meralco bill

f
GJ2

Dr
2,800

Date

Particulars

BAD DEBTS EXPENSE


Date

Particulars

Dr

Date

Particulars

DEPRECIATION EXPENSE
Date

Particulars

Dr

Date

Particulars

101
f
GJ1

GJ2

Cr
2,500
1,500
12,500
3,000
2,800
2,500
24,800

102
f
GJ2

Cr
3,000
2,500
5,500

103
f

Cr

104
f
GJ1

Cr
500.00

105
f

Cr

106
f

Cr

201
f
GJ1

Cr
P

25,000
2,000
27,000
12,500

202
f

Cr

301
f
GJ1

Cr
P

200,000

302
f

Cr

303

Cr

401
f
GJ1

Cr
7,000
10,000
17,000

501
f

Cr

502
f

Cr

503
f

Cr

504
f

Cr

505
f

Cr

506
f

Cr

CRUZ REPAIR SHOP


TRIAL BALANCE
JUNE 30, 2012
Amounts in Philippine Peso
Cash
Accounts Receivable
Supplies
Equipment
Accounts Payable
Cruz, Capital
Cruz, Drawing
Repairs Revenue
Rent Expense
Salaries Expense
Utilities Expense
Total

CRUZ REPAIR SHOP


ACCOUNTS RECEIVABLE SCHEDULE
JUNE 30, 2012
Amounts in Philippine Peso
Stefano
Mateo

CRUZ REPAIR SHOP


ACCOUNTS PAYABLE SCHEDULE
JUNE 30, 2012
Amounts in Philippine Peso
Avenson

Dr
187,700
4,500
1,500
25,000

Cr

12,500
200,000
3,000
17,000
2,500
2,500
2,800
229,500

229,500

2,500
2,000
4,500

12,500

should be the same with the amount


of the Accounts Receivable in the
Trial Balance

should be the same with the amount


of the Accounts Payable in the
Trial Balance

SUBSIDIARY LEDGERS
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER OR CUSTOMERS' CARD
CUSTOMER'S NAME: BARTOLOME
Date
Particulars
Jun 15 Services on account
22 Collection of account

f
GJ1
GJ2

CUSTOMER'S NAME: STEFANO


Date
Particulars
Jun 15 Services on account
22 Collection of account

f
GJ1
GJ22

CUSTOMER'S NAME: MATEO


Date
Particulars
Jun 15 Services on account

f
GJ1

Dr
P

3,000
P

Dr
P

5,000
P

Dr
P

2,000

ACCOUNTS PAYABLE SUBSIDIARY LEDGER OR SUPPLIERS' CARD


SUPPLIER'S NAME: AVENSON
Date
Particulars
Jun 4 Acquisition of equipment
18 Partial payment

f
GJ1

SUPPLIER'S NAME: AZE HARDWARE


Date
Particulars
Jun 10 Puchase of supplies
12 Return of supplies
18 Full payment

f
GJ1

Dr
P
P

12,500

Dr
P
P

500.00
1,500

Y LEDGERS

TOMERS' CARD
Cr
P
3,000

Balance
3,000
0

P
2,500

Balance
5,000
2,500

Cr

Cr
P

Balance
2,000

RS' CARD
Cr
25,000 P

Balance
25,000
12,500

Cr

Balance
2,000
1,500
0

2,000 P

CRUZ REPAIR SHOP


WORKSHEET
FOR THE MONTH ENDED JUNE 30, 2012
Amounts in Philippine Peso

Unadjusted Trial Balance


Dr
Cr
Cash
Accounts Receivable
Allowance for Bad Debts
Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Utilities Payable
Cruz, Capital
Cruz, Drawing
Repairs Revenue
Rent Expense
Salaries Expense
Supplies Expense
Utilities Expense
Bad Debts
Depreciation Expense
Total
Total

Adjustments
Dr
Cr

Adjusted Trial Balance


Dr
Cr

Statement of Inc
Dr

ment of Income
Cr

Statement of Financial
Position
Dr
Cr

CRUZ REPAIR SHOP


STATEMENT OF INCOME
FOR THE MONTH ENDED JUNE 30, 2012
Amounts in Philippine Peso
Repairs Revenue
Less: Expenses
Rent Expense
Salaries Expense
Supplies Expense
Utilities Expense
Bad Debts Expense
Depreciation Expense
Net Income (Net Loss)

CRUZ REPAIR SHOP


STATEMENT OF CHANGES IN EQUITY
FOR THE MONTH ENDED JUNE 30, 2012
Amounts in Philippine Peso
Cruz, Capital - June 1
Investment during the month
Net Income (Net Loss)
Withdrawals
Cruz, Capital - June 30

CRUZ REPAIR SHOP


STATEMENT OF FINANCIAL POSITION
JUNE 30, 2012
Amounts in Philippine Peso
ASSETS
CURRENT ASSETS
Cash
Accounts Receivable
Allowance for Bad Debts
Supplies
NON-CURRENT ASSETS
Equipment
Accumulated Depreciation
TOTAL ASSETS
LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts Payable
Utilities Payable
EQUITY
Cruz, Capital
TOTAL LIABILITIES AND EQUITY

CRUZ REPAIR SHOP


STATEMENT OF CASH FLOWS
FOR THE MONTH ENDED JUNE 30, 2012
Amounts in Philippine Peso
Cash flows from Operating Activities
Collection from customers
Payment of expenses
Net cash flows provided (used) by operating activities
Cash flows from Investing Activities
Payment for acquisition of equipment
Net cash flows provided (used) by investing activities
Cash flows from Financing Activities
Investment by the owner
Withdrawals for personal use
Net cash flows provided (used) by financing activities
Net Increase (Decrease) in Cash
Cash Balance - June 1
Cash Balance - June 30