Practice Set

EJ Manufacturing Corp is a retailer of Softdrinks with a sales price of P30 and uses perpetual system of
inventory. It started its operations on January 1, 2O19. The company's unadjusted trial balance as of
December 31,2O19 is as follows:

Unadjusted Trial Balance

ACCOUNT TITLES Debit Credit
Cash and Cash Equivalents 4,950,000.00
Trade and Other Receivables 2,575,000.00
Merchandise Inventory 2,745,000.00
Premiums - glass 450,000.00
Prepayments 565,300.00
Property and Equipment 6,236,834.00 12 years
Accumulated Depreciation 344,000.00 3 years
Right of Use Asset 1,352,000.00 3.0373
Accumulated Depreciation 135,200.00
Trade and Other Payables 1,205,000.00
Notes Payable 4,000,000.00 2500000
Discount on Note Payable 811,136.00 0.7118 12%
Lease Liability 1,067,200.00
Bonds Payable 2,000,000.00 5 years 10% 200,000
Premium on Bonds Payable 86,596.00
Share Capital, 10o par 6,000,000.00
Share Premium 500,000.00
Retained Earnings 1,800,000.00
Sales 12,000,000.00
Cost of Sales 5,200,000.00
Salaries and Wages 1,552,000.00
Depreciation Expense 350,000.00
Light and Water 228,500.00
Insurance Expense 200,000.00
Repairs and Mainenance 340,550.00
Taxes and Licenses 144,500.00
Representation Expense 344,400.00
Office Supplies Expense 234,700.00
SSS, PHIC, HDMF Premiums Expense 403,000.00
Advertising Expense 230,000.00
Premium Expense 120,000.00
Interest Expense 105,076.00 ###
TOTAL 29,137,996.00 29,137,996.00
EJ Co. started a promotional program in the current year. For every 20 empty cans
returned, customers receive a glass with a cost of P15 The entity estimated that only
80% of the cans reaching the market will be redeemed and the entity already
distributed 50% of the expected number of premiums to be distributed.

On April 1, 2019, EJ Co. issued 3-year 12% bonds with face amount of P2,000,000.
Interest is payable semiannually April 1 and October 1 and it is said to have an
effective interest rate of 10%.. The bonds were issued for 2,101,520.

On January 1, 2018, EJ Co. acquired a tract of land for P5,250,000. The entity paid
P1,250,000 down and signed a noninterest bearing note for the balance which is due
on January 1, 2021. The prevailing interest rate for this type of nore was 12%. Use
PVF with 4 decimal places.

On January 1, 2018, EJ Co. leased machinery from My Co. for a 10-year period. The
useful life of the asser is 20 years. Equal annual payments under the lease are
P200,000 and are due on January 1 of each year started January 1, 2018. The present
value on January 1, 2016 of the lease payments over the lease term discounted at
implicit interest rate of 10% was P1,352,000. The lease provides for a transfer of
title to the lessee upon expiration of the lease term.

The following equity transactions were incurred during the current year but not
reflected in the books of EJ Co.:

a. On January 26, the entity reacquired for cash 5,000 shares for P110 per
share.

b. On April 4, the entity sold for cash 3,000 shares of treasury for P140 per
share.

c. On June 1, the entity declared a cash dividend of P20 per share,

payable July 5, to shareholders of record on July 1.
d. On November 1, the entity declared a 2 for 1 split and changed the par
value from P100 to P50. On November 20, shares were issued for the
share split.

e. On December 5, 4000 shares were issued in exchange for a second

hand equipment. The equipment originally cost P400,000 was carried by
the preevious owner at a carrying amount of P200,000 and was fairly
valued at P260,000