Activity 1.

The following are selected unadjusted account balances and adjusting information of TOBI for
the year ended December 31, 2020.

Retained earnings, January 1 P 1,322,010

Sales salaries and commissions 75,000
Advertising expense 48,270
Legal services 6,675
Insurance and licenses 23,040
Travel expense – sales representatives 13,680
Depreciation expense – sales/delivery equipment 18,300
Depreciation expense – office equipment 12,600
Interest revenue 1,650
Utilities 19,200
Telephone and postage 4,425
Office supplies inventory 6,540
Miscellaneous selling expenses 8,220
Dividends 99,000
Dividend revenue 15,450
Interest expense 13,560
Allowance for doubtful accounts (credit balance) 480
Officers’ salaries 109,800
Sales 1,353,000
Sales returns and allowances 11,700
Sales discounts 2,640
Gain on sale of assets 23,460
Inventory, January 1 269,100
Inventory, December 31 61,650
Purchases 424,800
Freight in 16,575
Accounts receivable, December 31 783,000
Income from discontinued operations (before income taxes) 120,000
Loss on sale of equipment 217,800
Ordinary shares outstanding 117,000

Adjusting information:

(a) Cost of inventory in the possession of consignees as of December 31, 2020,

was not included in the ending inventory balance....................................................P55,800

(b) After preparing an analysis of aged accounts receivable, a decision was made
to increase the allowance for doubtful accounts to a percentage of the ending
accounts receivable balance............................................................................................2%

(c) Purchase returns and allowances were unrecorded. They are computed as a
percentage of purchases (not including freight in)............................................................6%

(d) Sales commissions for the last day of the year had not been accrued. Total
sales for the day........................................................................................................ P9,180
 Average sales commissions as a percent of sales...........................................................3%

(e) No accrual had been made for a freight bill received on January 2, 2021, for
goods received on December 29, 2020.....................................................................P1,710

(f) An advertising campaign was initiated November 2, 2020. This amount was
recorded as “Prepaid advertising” and should be amortized over a six-month
period. No amortization was recorded.......................................................................P5,454

Freight charges paid on sold merchandise were netted against sales. Freight
charges on sales during 2020..................................................................................P10,500

(g) Interest earned but not accrued.................................................................................P1,680

(h) Depreciation expense on a new forklift purchased March 1, 2020, had not
been recognized. (Assume all equipment will have no salvage value and the
straight-line method is used. Depreciation is calculated to the nearest month.)
Purchase price.........................................................................................................P23,400
Estimated life in years.......................................................................................................10

(i) A “real” account is debited upon the receipt of office supplies. Office supplies on hand at
year-end..................................................................................................................... P3,675

(j) Income tax rate (on all items).........................................................................................30%

Required: Compute the following: (show solutions)

1. Net sales
2. Cost of goods available for sale
3. Inventory, December 31, 2020
4. Distribution costs
5. Administrative expenses
6. Allowance for doubtful accounts
7. Total income
8. Income from continuing operations before taxes
9. Office supplies inventory
10. Net income