EXERCISES

1. Miss Quita began operating the Ace Modeling with the following:
a) Invested cash of P 500,000.
b) One half of the cash was paid for the lease contract of a floor space in Makati.
c) She also borrowed P 500,000 from PNB and issued to PNB a 180-day promissory note.
She deposited this in the name of the business.
d) One half of the amount borrowed was used to buy furniture and fixture and P 100,000 for a set of a
computer, printer and fax machine.
e) She withdrew P 50,000 of the amount borrowed.
f) She also bought a car for P 400,000 from World Motors paying 50% in cash, with the balance payable
within a year. She will use this for her modeling agency.
g) She paid P 100,000 of the amount due to World Motors.

Analyze the effects of the transactions using the basic accounting equation. Provide for the total balances of
the accounting elements in the said equation.

2. Listed below are several transactions for Alabyu Health Spa for July 2019.
July 4 Alabyu invested P 1,500,000 cash and vacant lot worth P 300,000 in a health clinic called Alabyu
Health Spa.
6 Hired a janitor, cashier, and therapist with a monthly salary of P 5,000, P 7,500, and P 10,000.
8 Purchased P 900,000 worth of equipment and P 15,000 worth of supplies in cash and on account,
respectively.
10 Bought furniture & fixtures from a friend at a cost of P 150,000 to pay after 7 days. The fair value
prevailing in the market is P 100,000. Only P 80,000 of these were placed in the clinic, the
remaining furniture & fixtures were placed in her newly built house.
12 Withdrew supplies worth P 1,000 for personal use.
13 Paid one half of the account due on the furniture and fixtures.
15 A two-story clinic was constructed on the vacant lot. The construction cost was P 1,500,000 and
was paid out of bank loan.
30 Paid the salary of the employees.
Total service revenue rendered for the month is P 350,000, 30% of which is on credit.
Paid utilities for the month amounting to P 60,000.

Required:

a. The effects of the transactions on the accounting elements using the expanded accounting equation.
b. How much is the ending capital of Alabyu Health Spa?

3. Identify what underlying concept is referred to in the following:

a. Economic activities should be separately recorded from owner’s personal activities.
b. The life of the business is assumed to be indefinite but statement users need timely reports for them
to be able to make economic decisions.
c. Income are recognized when earned and expenses are recognized when incurred.
d. Assets are recognized at acquisition price and carried without change.
e. Expenses are matched on the benefits received by the company.

4. What is the basic purpose of accounting?