PROBLEM 1

ABC is in retailing laundry supplies. The company kept very limited records and most of the company’s
transactions are summarized in cash records. ABC presented you the following information:

Total cash receipt from customer, based on cash records P576,000

Proceeds from a bank loan (note payable – non trade) 100,000
Total cash payments to suppliers, based on cash records 299,000
Total cash payments for other operating expenses 144,000
Credit memos issued, for returns and allowances 50,000
Total refund for goods received as returns, based on cash records 25,000
Sales discount 40,000
Credit memos received, for returns 45,000
Total refund for goods returned to suppliers, based on cash records 15,000
Purchase discounts 30,000

Further investigation revealed the following:

Decrease in accounts receivable P150,000
Increase in accounts payable 200,000
Increase in notes receivable 50,000
Increase in notes payable – trade and non trade 10,000
Accounts written off during the year 25,000
Cash recovered from previous write-offs 5,000
Increase in merchandise inventory 131,000

Required:
1. What is the accrual basis gross sales?
2. What is the accrual bases gross purchases?
3. What is the correct net sales?
4. What is the correct cost of sales?
5. What is the correct gross profit?

PROBLEM 2
An analysis of incomplete records of XYZ Corporation produced the following information applicable to
2014:

ACCOUNT INCREASES
Cash P4,200,000
Accounts receivable 1,400,000
Accounts payable 400,000
Prepaid insurance 200,000

ACCOUNT DECREASES
Inventory P1,000,000
Equipment 100,000
Notes receivable 600,000
Accrued salaries payable 300,000
Summary of cash transactions were as follows:

RECEIPTS:
Cash sales P3,000,000
Collections on accounts receivable 30,000,000
Collections on notes receivable 2,400,000
Interest on notes receivable 200,000
Purchase returns and allowances 500,000

DISBURSEMENTS:
Cash purchases P1,000,000
Payments on accounts payable 16,500,000
Sales returns and allowances 400,000
Insurance 700,000
Salaries 10,000,000
Equipment 800,000
Other expenses 1,500,000
Dividends 1,000,000

Additional information:
a. Total purchase returns and allowances amounted to P800,000.
b. Total sales returns and allowances amounted to P1,200,000.

Required: Determine the adjusted balances of the following:

1. Net sales
2. Net purchases
3. Cost of sales
4. Depreciation expense
5. Net income